Is It Beneficial To Invest In Commodity Mutual Funds?

At present time commodities mutual funds are attempting to bring the futures and options markets to retail investors' reach. Commodities markets otherwise required investments of the tune of $50,000 and some times even $100,000 in one go. In addition to 3% to 4% asset fees apart from a 20% cut from the profit. As it is clear the commodities mutual funds do not have a history of track record.

Whether one benefits by investing in these funds is still an open question. But looking at the positive side one can invest in them for short periods. Fluctuation in the indices in addition to market forces react to inflation too. Secondly, though weightage to speculative investment is limited you should not forget these are in high priced commodities like silver and copper and the like. This means however small percentage of investment in these may be, the value turns out to be huge. (Remember the 3% effect for every one percentage loss/profit?)

Notwithstanding this, there are some largely traded commodities mutual funds such as Pimco's Commodity Real Return Fund, tracking DJCI and Rogers fund.

Get Rich Now, Invest In Commodities Mutual Funds

Did you know investments in futures are planned in such a way so as to make a difference of about 3% when there is an effect of 1% to the contract (example: Oppenheimer Real Asset Fund).This is applicable to both up and downward price movements.

If this entices enough to take a dive right into commodity mutual funds' market, wait. The market is negatively correlated to traditional assets. This means when ever there is bull run in the traditional (stocks) market commodities go down and visa versa. Though returns are extremely attractive, they still carry a high risk factor owing to volatile nature of the asset class.

Though there are enough instances to say one can make money investing in commodities mutual funds over short periods, time is not ripe enough to emphatically advise that these avenues of investment as an option of making money.

An Advice to Beginners in Commodities Mutual Funds

As a beginner you can explore the commodities for diversification along with other investments. However, backed by some of the finest professional expertise, the commodities mutual funds have managed and come out trumps in the short period of their existence. Though this is known as a big man's game, it is not for nothing that it is gaining popularity among the retail investors. There are up to seven commodities indices and you can choose directly at least on five of them for investing upon. Keep that in mind.

Maximize Your Profits with Commodity Mutual Funds

Commodities mutual funds are those investing in certain designated real assets or their derivatives like futures contracts. The commodities or the derivatives are traded for maximizing profits. This article informs you on:

• Know in detail about commodity mutual funds
• Which are the two indices marking commodities market?
• out the principle behind commodity mutual funds

There are times when financial assets are out of favor and real assets are in favor, Mutual funds need to address that. says Don Phillips, president of Morningstar Inc.

Commodities mutual funds are those investing in certain designated real assets (as listed in the following paragraph) or their derivatives like futures contracts (instruments that facilitate investment in commodities). The commodities or the derivatives are traded for maximizing profits. All said and done there are no commodity mutual funds in real terms and all those trading in commodities are hedge funds (hedge funds are for big time investors who can pool in excess of $1 million for the purpose of trading in commodities).

In a way commodity mutual funds are scaled down versions of hedge funds that provide a chance to retail investors to take a look at commodities market who otherwise were not able to.

Bench Mark Indices for Commodities Mutual Funds

Commodities' market facilitates trades in real assets unlike virtual assets in conventional markets. For example we have two indices marking commodities market. One is GSCI, stands for Goldman Sachs Commodity Index and DJCI, which stands for Dow Jones Commodity Index.

GSCI has 22 different commodities right from oil to cooking-fuel oil listed on the basis of their contracted future prices (technically called as futures). About 55% of this is made up by Energy futures and another 25% by agriculture commodities. The balance of them is spread amongst bond markets. This broad based, diversified index gives weightage to long term and un-leveraged commodities. The weightage itself is calculated on the basis of the commodity's currency (flow through) in the economy. The quantity and their presence in the index are calculated based on their five year average production.

Where as the DJCI is a pretty liquid index with broader outlook and worldwide importance of commodities. None of the commodity can have a representation of more than 33%.

How Do Commodities Mutual Funds Operate?

Commodity mutual funds operate by investing in what are known as future contracts (an industry jargon for instruments of contract for commodities & prices) to anywhere between one third and one half of their asset. The contracts are made for a future date and price obligating the buyers and sellers. These futures (contracts) are traded on exchanges and values vary based on speculation and hedging (reducing risk). Some future notes are delivery based (delivered to the buyer) and some others are cash settled upon expiry of the contract at the higher of the speculated value and the contract value.

The commodities mutual funds, in order that some kind of stability is attained will invest the balance money with them in short term government securities. The returns on these will compliment returns from commodities investments apart from paying for expenses. A small amount may be set aside for speculative trading in commodities like silver, hogs etc. Some funds take care of effects of inflation by the earning they make on government securities. These are known as inflation insulated or inflation free funds.

What Are The Advantages Of Mutual Funds?

The main advantage of a mutual fund is that they diversify your investment portfolio. That way, the risk is reduced. Unfortunately, that doesn't mean that, if there is a market crash, your investment won't suffer. For example, imagine that the whole raw materials craze that exists in the world is just a bubble.

If China stops buying them, for one reason or the other, people will get mad. Prices would fall and mutual funds that depend on commodities would suffer greatly. In this type of instances, there is no much to do but assume the loss. After all, that is the way of the market. For all possibility of gaining money, there is a risk entailed.

Of course, there are other types of mutual funds with a much lower risk, for example, municipal bond funds. With this type of bonds, municipalities finance their long term infrastructures. Since this type of investment is considered more solid than the up and downs of the commodities market, the possibility of loosing your money due to an unexpected event is reduced.

But that also means that the amount of money that you will earn is a lot less. These funds are very attractive for people who don't want to invest their money in risky businesses. For example, old people who are looking for ways to maintain the money that they have accumulated after decades of work.

Another advantage of mutual funds is that they are managed by professionals. Active management guarantees you that the best analysts will be the ones evaluating bond mutual funds, looking for new opportunities. After all, it is in their best interest. If they invest correctly, their clients will make a lot of money. Ergo, they wil l have more clients and more revenue. If they don't invest correctly, they will find themselves without clients, and without jobs.
 
Let's take one of the many companies in the market. For example, Fidelity bond funds. Fidelity Investments has been in the market for more than 50 years, and they know that the best way to attend their clients is through information. That's why, when you enter their webpage, you will find tons of processed data on the different types of financial products that they offer to the market.

As you can see, bond mutual funds aren't for everyone. If you want to pursue a riskier path, but more profitable path, then you should choose other type of security. But, if you want to feel more sure about your money, then it is the way to go. Fortunately, there are many options to choose from, like emerging market bond funds, international bond funds, tax exempt bond funds or municipal bond funds.

Insurance Deductibles

In the United Kingdom, deductible is known as "excess". This makes sense when you think about it. Deductible is the amount of money that you are required to pay that is not covered by the insurance company. It was first introduced on commercial insurance policies by Norman Baglini in 1952. So much for Norman, he won't go down in my record book, but as far as the insurance industry is concerned, he's a pretty good guy with a great idea. The deductible is now standard on just about all insurance policies. The rule of thumb is that the higher your deductible, the lower your premium.
On auto insurance policies, when you submit a claim for damage to your vehicle, a deductible will apply. The same would apply to homeowner's insurance or renter's insurance. And with the skyrocketing cost of health insurance, many people are opting for higher deductibles as a way to control the cost of insurance.
So, let's think about an auto insurance policy that has a $500 deducible. If an accident occurs and damage to your vehicle is $5,000, you pay $500 and your insurance company pays the remaining $4,500.
In some instances, it's prudent to determine the amount of damage first to see if it's under your deductible. If you bump into your own mailbox and put a minor scratch on your car, get a quote first to determine the amount of the damage. If it's $200 and your deductible is $500, you will not get anything back from your insurance company.
In storm-prone areas of the country, insurance companies may require a "hurricane deductible" or "wind deductible" that is placed on your homeowner's insurance. Instead of a fixed dollar amount, the wind deductible may be a percentage of the value of your home, such as 2% or 5%. In these areas, it's especially important to shop around not just for price, but for deductibles! But always remember, the higher your deductible, the lower your premium.
Your premium will be calculated based on governmental requirements and regulations, or by the different factors that are considered when looking at an insurance policy.
Keep in mind that different states in the US have liability requirements for auto insurance, and that you're not really insured without meeting those requirements. Sometimes in order to meet your state requirements, you'll be forced to pay more than the "minimum" premium because you need to fulfill the state requirement.

NRI Insurance

Insurance is the act of risk management that is taking precautions to evade against the risk of a liable, uncertain loss. It is defined as the even-handed allocation of the risk of a loss from one individual to another, in exchange of reimbursement. Insurance policies are sold by companies. The rate of the insurance is the deciding factor for the premium amount which is the payment to be made for the coverage. Banks and insurance companies come out with various schemes time and again to attract people to insurance schemes. Insurance schemes include life insurance, well being insurance, foreign travel insurance, household insurance, car insurance and two-wheeler insurance. Depending on the amount one wants to insure, an insurance coverage is charged calculated as a certain percentage of the principal insurance amount and this coverage is paid by the policy holder over a period of time. After the insurance coverage is paid for the determined time the policy lies stagnant for a certain time and then the insurance can be claimed. In case the event for which the entity being insured takes place before the stagnant period is complete, the policy holder is reimbursed the insurance amount in whole.
Non Resident Indians also enjoy insurance schemes at par with their other fellow Indians. Indian citizens' who go on temporary or long term visits abroad can safeguard their property, assets and life through insurance schemes. This is possible through the purchase of tailored insurance products which are offered by a multitude of insurance companies and banks. NRI's are also allowed to take up loans against their policies too. They can tailor their insurance portfolios without any upper limit on the sum to be insured. However this is not the case with the POI citizens. In case of a Person of Indian Origin he or she can only be covered up to a maximum limit of twenty lakhs only. They cannot apply for joint profiles too. NRI's however can opt for joint life plans which have the team insurance element.
The foreign exchange regulations have certain policies and rules with respect to the life insurance schemes for NRI's. Since the policy papers are considered as securities these documents cannot be taken out of the country without the consent of the Reserve Bank of India. for NRI's the premium payment can be made online and it is the preferred mode of payment. It is also possible to remit the premium amount through FCNR or NRE accounts through approved banking channels, money orders etc. if NRI's have people in India they can also make the payment on the NRI's behalf. For NRI's the insurance claims are made in foreign currency as an exception. But to avail this benefit the policy holder must be an overseas resident and should have paid all the premium dues in foreign currency.

Evaluating Bond Mutual Funds

Today, there are, literally, hundreds of mutual funds in the market. They can be municipal bond funds, tax exempt bond funds or closed end bond funds. For many decades, they have been one of the most important channels of investment for millions of Americans.
And it doesn't seem that they will disappear anytime soon. But how do they work exactly? Are they really a good way to invest your money? These and many more questions will be answered in the following paragraphs.

What Are Mutual Funds?

A mutual fund is considered a form of collective investment. In this financial instrument, investors put their money in different type of securities, like bonds or shares. The fund manager uses this money for investing it in securities that he has previously analyzed. For example, he may invest highly in Brazilian companies that produce ethanol due to the future potential of this fuel. Another possibility is a software company at Israel, who develops software for the defense sector.

With time, mutual funds will generate gains or losses. In the case of gains, they will be passed to the investors, minus a management fee for the fund manager. Also known as an open-ended company, mutual funds are one of the three types of investment companies that exist in the US. The other two are close-ended funds and unit investment trusts (UITs).

The history of mutual funds remounts to the roaring twenties. In 1924, the first mutual fund appeared, under the named of Massachusetts Investors Trust. Their popularity continued to grow until the market crash of 1929. In order to fix any instabilities in the market, the Congress passed a law under which all mutual funds had to be registered in the Securities & Exchange Commission (SEC).

Almost 25 years after their creation, the number of mutual funds increased to 100, and they amassed 1 million investors. By the end of the decade, the assets surpassed the $15 billion. By the end of the sixties, that number jumped to almost $50 billion. And, today, there are more than 8,000 mutual funds, with combined assets that surpass the $9,000 trillion.

Other Types of Mutual Funds That Invest In Multiple Sectors

There are funds that invest in multiple sectors of tradable securities including government securities. Though most of these are open end mutual funds closed end funds are not entirely new to this. Some of these types are:

Money Market Funds

A conservative and short term allocation of funds that yield moderate returns but the funds emphasize on preservation of capital.

Balanced and Growth Funds

A relatively aggressive fund that focuses on higher returns and capital appreciation. Another important feature of this type of funds is they are highly diversified reducing market risks.

Index Funds

Goal of index funds is to match the market performance by investing on index heavy weights. This can be a bond index fund or a stock index fund. For the latter type Dow Jones is an example and they follow the 30 stock index. Low expenses are the advantage.

Combination Funds

There are a number of combination funds available in the market. For income you have income funds that invest in mainly government bonds and some times in private sector debt instruments too. These are also called as bond mutual funds. The aim of such funds is to provide a guaranteed regular income to investors. The values of units/shares are determined by the fluctuating rates of interest. Higher the rate of interest on the bond instruments higher is the price of shares. There is a whole host of options in the category with multiple combinations to choose from.

Pure Stock Funds

The main type of funds under this category are aggressive ones and the first concentrates on growth by investing in such companies that have potential to an explosive growth. You should not forget that other side of high growth potential is high risk element. These funds do not usually pay dividends at all. Buying them is at your risk of going bankrupt of the entire fund. The other types include, funds invested in large caps stocks, mid stocks where in their share value is stable or the fluctuation is minor. On the flip side the dividends paid by such companies are not usually attractive.

Growth Funds and Growth and Income Funds

Growth funds concentrate on bigger growth potential but keeping an eye on the dividend income too. The asset allocation in growth funds is spread on both but with skewness in favor of instruments of high returns. Certain safety factors are in built in to the allocation mechanism here. This is recommendable depending on your risk exposure limit. On the other hand growth and income funds emphasize more on appreciation of the capital employed and dividend income than investing in high growth companies. This is recommendable when your objective is not high returns in a short term but a steady income and a growth in the principle over a period of time.

Load and No-Load Funds

Some funds charge you fees called as loads to cover their expenses to manage your asset/investment. These loads appear to be small but work out to be a very high amount over a long period. Certain funds do charge fees even while claiming they are no load funds. It is important to check out the repercussions of this on your returns after deduction of tax and fees.

Tips To Choose a Right Fund for Your Need

There is no better guide to investment than your objective. There is a fund to suit every need and picking one should not be a difficult decision. A few points on this:

• Decide on the amount you can put aside
• Write down your objectives like steady growth, steady income or faster growth etc
• Optimize your theoretical returns as opposed to investments and expenses considered
• If your objective is stability and income G-SEC bond funds are your best bet
• Don't forget to cross check the credibility and experience of the funds.

Learn the Types before Investing in Mutual Funds

 There is no one method of classifying mutual funds risk free or advantageous. However we can do the same by way of classifying mutual funds as per their functioning and the type of funds they offer to investors. This article makes you aware on:

• What are the reasons that make the close ended mutual finds more attractive?
• What are the factors that determine the prices of exchange traded funds?
• Find out the features of open ended mutual funds

There is no one method of classifying mutual funds risk free or advantageous. However we can do the same by way of classifying mutual funds as per their functioning and the type of funds they offer to investors. If we took the middle path and classify broadly we get the following list.

Open End Mutual Funds

All mutual funds by default and by definition are open end funds. Here an investor can buy the shares at any point of time and exit from it at any time of his choice. Both buying and selling will be at the current NAV subject to load factors where ever applicable. Though this is a very broad category, one can easily say this is the most popular of the lot looking at the ease with which one can liquidate his holding (exit from position by selling or redemption to the trust/fund). Affordability is another key factor that decides the popularity of open end funds. Those who can not afford high initial prices can buy with low dollar values and even on a monthly basis.

Closed End Mutual Funds

Selling off of a specified and limited number of shares by the mutual funds at an initial public offering is known as closed end mutual fund. However one important difference between open end fund and closed end mutual fund is that the price of the latter is decided by demand and supply of the stock in the market and not by NAVs unlike in the former case. The pooled funds are utilized as per the mandate of the fund and Securities and Exchange Commission's regulations. They are traded more like the general stocks. Some of the reasons to invest in this category

• Prices are determined by market demands and thus closed end funds trade at lower than the offer price more often than not which is a perfect time for buying (at discounted prices)
• Like in the open end funds there are wide options for you to choose from. Like stock funds, balanced funds that give full asset allocation benefit and thirdly the bond funds.

Exchange Traded Funds

The Exchange Traded Funds are a basket of stocks and trade like a normal security on exchanges tracking index much like index funds. The prices of the ETFs are determined by market forces and thus no NAVs can be fixed. The advantages of ETFs include buying and selling like you can do with any stock traded on the exchange not excluding short selling while you enjoy the diversification of an index fund. There no fees/loads on these funds other than the commission you pay to the broker. There are many popular funds in this class and one of them is SPDR that tracks S&P 500 index.

What are the Laws Governing Mutual Funds?

Mutual funds are governed under various laws in US and elsewhere. Basically all these laws are formulated with the protection of the investing community in view. In US Securities and Exchange Commission sets forth numerous requirements for registration and regulation of mutual funds. The primary regulation that governs the mutual funds is the Investment Company Act of 1940 and various rules and forms of registration adopted under them. The other important acts mutual funds are subjected to are the Securities Act of 1933 and Securities Exchange Act of 1934.

These laws are enacted in order to foster investment culture among general public and protect them from natural and artificial risks. These laws provide basis for their conduct and transaction in a fair and legitimate way. The advantages of mutual funds are mostly exempted from tax deductions.

If You Want To Invest In Mutual Funds

If you have made the decision, mutual funds are one of good investments. Look for various types of funds to begin with. There are three types if investment companies.

1. Open end investment companies
2. Closed end investment companies and finally
3. Unit Investment Trusts

Secondly, look for their portfolio after weighing down their past performance and experience of their fund managers (past performance is not a guarantee of projected returns). Look for various fees/loads and ways to exit such as redemption and selling in the open market. Don't over rule taking advices from a professional especially when you are new and confused.