By Vipin Agnihotri
It has come into the notice of The India Street that after a long bearish pace, the commodity sector is passing through a bull phase and the trend is expected to continue. Talking about commodity-based funds, these are the funds that focus on investing in different commodities. It includes, metals, food grains and crude oil.
In my opinion, commodity-based funds are quite a good option for investors that are willing to diversify their portfolio. It is worth mentioning in this regard that commodity-based funds substantially differ from other equity funds, as their main objective is investing in commodity companies.
In general, the returns of commodity funds are closely linked to commodity prices. On the other hand, volatility is the intrinsic property of the commodity market and investors can enhance their returns at the same risk level with the assistance of commodity funds, which by the way intrinsically has in it the opportunity to diversify across number of commodities at the same time.
If experts are to be believed, commodity based funds are well poised to tap the opportunities created by commodities globally. Although, there are some who is of the opinion that the performance of commodity funds has been average despite buoyant market scenario.
But the fact of the matter is that commodity based funds are inclining towards big cap stocks at present therefore future definitely looks bright. Investors who have their debt and equity funds in order can certainly take help from the findings of Ibbotson Associates, which is a leading US based authority on asset allocation.
Ibbotson Associates believes that commodities markets increase returns between 133 and 188 basis points at virtually no extra risk. In addition, commodity based funds are a sure shot hedge against inflation too.
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