Commodity mutual funds are a relatively new and interesting process of investing. The investment process is also very potentially rewarding and thus is attracting a lot of people towards it nowadays. It is actually a very good way to diversify the portfolio of the investment process of the customer. This diversification is beyond the world of bonds and stocks. That is the reason that the commodity mutual funds are considered as a hedge against the inflation problem that is usually faced by the other investment process. This actually means that the prices of the concerned commodities are having a tendency to rise with the rise in the inflation. This whole process actually runs parallel or counter to the stock prices.
Basics:
The commodity mutual funds were originally introduced with the idea of diversifying the whole mutual investment process. The concept of commodity mutual funds actually deals with the investment in certain types of designated real assets and also their future contracts which are the derivatives of the same. The derivatives or the commodities are actually traded with the motto of maximizing the profits from the investments.
Ideas behind the origin of the commodity mutual funds:
There are some times when the financial assets are not of favor any more and the concern needs to be shifted towards the real assets. But there is no existence of the commodity mutual funds in the practical sense of the word. All the companies which deal in the field of commodity mutual funds are actually investing in the field of hedge funds. The hedge funds are actually meant for the big time investors who can actually store a big amount of money which ranges to about 1 million$. The purpose is to trade in commodities. This whole process of the commodity mutual funds is deemed as a scaled down version of the hedge funds. These provide the investors or the retail investors to have strong hold on the commodity market. This is important for them as it would have been other wise impossible for them to have grip on the same.
Bench mark indices:
The commodity markets actually facilitate the trades in the real assets and not like the virtual assets that are being used in the conventional market of financial investment. For the convenience of the whole process, there are two indices that have been set up. The two indices are namely the GSCI and the DJCI. The first one stands for Goldman Sachs Commodity Index, and the later stands for Dow Jones Commodity Index. The basis of marking the indices is different in both the types. The GSCI has about 22 varied commodities that range from the oil to cooking fuel oil. The list is made on the basis of the concerned contracted future prices. More then half of the index is made up by the energy futures. The constitution of the energy futures is about 55%. The other 25% is made up by the agricultural commodities.
The DJCI is a relatively liquid index and the outlook of the index is broader. The world wide importance of the commodity is kept in mind. None of the commodities can have a representation of more than 33%.
