Exchange Traded Funds For Commodity Investors


In recent years, there is one type of fund that has hit the commodities market creating a major impact. This comes in the form of exchange traded funds. United States markets alone hold more than $10 billion in assets, as of 2009. The investor has many choices when it comes to using these funds, for more detailed info you may check this link They use them to purchase exposure to individual commodity sectors, gold, oil, broad-based commodity futures indexes, and silver. What makes these funds so popular is the fact that they are very easy to purchase. They are purchased as an exchange-traded fund as an investor would purchase any other security. Exchange traded funds are considered very affordable because there is no commission charge for purchase and they cost approximately 75% less than a commodity mutual fund.

Futures are very popular with investors, which can be considered the home of commodities-linked exchange trade funds. The way this works is that this type of fund will buy futures with leverage, but they will only offer a small part of the cost of the contract. Then the remaining balance will go to treasuries, who will in turn generate income from the interest that is accumulated. When an investor begins to inquire about the return he or she will get on their investment, the answer can be increasingly complicated. This is because it is based on many different contingencies that begin with roll yield, collateral interest income, and ends with any changes in spot price.

This can be a very tricky subject when it comes to exchange-trade funds. Essentially, the IRS requires investors to sell their exchange-traded funds by December 31 of each year. It is important to remember that if the fund is up then taxes will be owed. This is because there is no deferment when it comes to gains on commodity futures. It is vital to remember that all gains are taxed at a rate of 60 percent for long-term gains and 40 percent for short term; this is true not matter the holding time period. There is also a tax on the interest. Capital gains also cannot be deferred and they are taxed to a maximum of 23 percent. There are only two broad-based commodity indexes; ishares GSCI Commodity Index and Trust DB Commodity Index Tracking Fund. When researching these funds, an investor will find that they use futures, including collateral and yield interest loans, which charge the same expenses. There are some differences between the two funds. The first difference is that DB Commodity Index Tracking Fund only tracks six commodities while ishares GSCI Commodity Index Trust will track a more simplified index of 24 components.


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