Investing in a Commodity Mutual Fund? Read This First

Investing in a Commodities Futures Contract can prove expensive and extremely risk prone for a retail investor. Instead it is a good idea to consider investing indirectly in commodities using a Mutual Fund. However, as with other equities, the investor should remember that not all funds are created equal. So it is important to ask some pertinent questions before picking the mutual fund you wish to invest in. Your broker would be a good source of information on current funds that are doing well. If you have some idea about the market you could study them up yourself and pick a good commodity mutual fund to invest in. Here are some things to find out before you pick one.

Objective and Investment Strategy

Each mutual fund has its own objective. One may focus on income investing, another on capital gains, and a third on long term investment returns. In order to meet the objective each fund has an investment strategy. The percentage of the principal it invests in commodities will accordingly vary. It would be a good idea to scrounge through the investment documents to note how they plan to spend the money you invest and also find out who the fund manager is. This will give you a good idea of how and where your money is likely to be invested by the mutual fund.
 

Previous Track Record

The fund you invest in may be a new one, in which case you should find out the name of the fund manager and see how funds he has managed in the past have fared. If it is an older fund, say five years or older, then the figures of return on investment will speak for themselves. You will be able to track how the mutual fund has performed in the past and dealt with ups and down of the market. Of course the past track record is only indicative of how the future performance may be. There are no guarantees that the fund will do as well as it did in the past in the near future. That is a risk that you will have to take on your investment.

Minimum Investment Amount

Different funds have different investment amounts for people entering the mutual fund. Some funds have a higher minimum amount for individuals but a lower one for those investing through commodity brokers.  There are also different classes of shares in a mutual fund. Each class has its own value and you will spend more or less per share based on the share class you decide to invest in. You will need to find out what the minimum investment, applicable taxes, fees and expenses involved will be. Remember these expenditures will cut into your profits from the mutual find. Hence the lower the fees and expenses of a fund, the more of profit you get to take home with you.

After you have found out all the details about a suitable mutual fund, you should invest in it. Remember to monitor it closely and cut your losses if something wayward begins to happen.