Commodity mutual funds in India are not very popular. However, lately, people have shown an interest in the commodity mutual fund market because of derivatives.

This article will shed some light on the oft-ignored section of investment instruments - commodity funds and attempt to shed some light on the same.

Commodity funds constitute a type of mutual fund that invests in commodities. Here, commodities mean goods traded, such as food grains, petroleum, gold, metals, etc.

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It would be best to take the help of an example to explain how a commodity fund works. Just as equity mutual funds are tied to underlying equity assets, commodity funds are attached to underlying commodities, such as the trading price of petroleum, gold, metals, etc.

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Following are the benefits of commodity funds in India.

• Diversification seems to be the key benefit when you invest in a commodity mutual fund.
• Moreover, commodities act as a hedge against inflation.

To start investing in commodities, you will need to have a trading account with a reliable broker, or you will need to have a Demat account.

Here are some good reasons to stay invested in a commodity fund.

• Not Volatile Investments: Commodities, including silver and gold, do not vary very much in price, thanks to their immense value. Hence, changes in the market do not affect them.
• Protection Against Inflation: These funds tend to give returns at par with the global markets. Hence, they act as a hedge against inflation.
• Flexibility: Investors can meet their short term or long term investment goals with these investments.
• Many Options: With many available options, investors can quickly meet their investment criteria.

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Commodities depend highly on the demand and supply in geopolitical markets, as they are traded globally. If there is a huge risk of any geopolitical situation in an importing country, it can affect the value of the commodities.

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