Commodity ETF - Definition, What is Commodity ETF, Advantages of Commodity ETF, and Latest News - ClearTax (2024)

Introduction

A commodity ETF is a type of an exchange-traded fund (ETF) which is invested in physical goods such as agricultural commodities, precious metals, and natural resources. Usually, a commodity ETF focuses on investments related to futuristic contracts or a single commodity concerning physical storage. Other commodity ETFs aim to track down the overall performance of a commodity index inclusive of several individual commodities via a combination of derivatives positions and physical storage.

ETFs comprise public equities which are relevant to a specific economy, sector, industry, or market index. Normal ETFs comprise of a collection of securities which are interlinked by a similar investment profile. In the place of underlying securities such as public stocks, commodity ETFs comprises asset-backed or futuristic contracts which track either the performance of a specific commodity or a group of commodities.

Understanding Commodity ETF

Often, commodity funds generate their own benchmark indexes which may comprise only natural resources, metals, or agricultural products. The popularity of commodity ETFs has reduced since they render investors with exposure to commodities without the need for investors to learn how to buy futures or other kinds of derivative products.

Factors to consider before you invest

1. It is ETF that is invested in several kinds of physical commodities inclusive of natural resources, precious metals, and agricultural goods.
2. The commodity ETF maintains its focus on either a single commodity or on investments related to futuristic contracts.
3. An investor who buys a commodity ETF may not own a physical commodity, but a set of contracts which are backed by the commodity.
4. Commodity ETFs are high in popularity since they render investors with exposure to commodities without having the need for learning how to buy futures or other kinds of derivative products.
5. Popular kinds of commodities include oil, gas, and precious metals such as gold and silver.