As the name suggests, a Commodity Fund invests in commodities, such as precious metals oil and natural gas, and agricultural goods. A Commodity Fund may also invest in the companies that produce these commodities. There are several different types of Commodity Funds, including Index Funds, ‘true’ Commodity Funds and Futures-based Commodity Funds.
Some funds invest directly in a commodity such as gold bullion, while other invest in companies that deal with commodity related products or in commodity future markets, whereby commodities are bought at a predetermined future date and price. Some funds are a combination of the above.
A Commodity Fund delivers various benefits to investors such as diversification, protection against inflation, and potential financial growth.