Commodity Mutual Funds - Types and Benefits of Commodity Funds
For decades, Indian households have looked at gold and silver as the ultimate safety nets. However, in 2026 the way we invest in these essential resources has evolved. Commodity Mutual Funds have emerged as a powerful alternative to storing physical bars or coins, allowing you to invest in a wide basket of raw materials from precious metals to energy and agricultural produce through a simple, digital process. As of late 2025, commodities like silver have delivered standout returns (exceeding 160% in some categories), fueled by industrial demand and global supply constraints. At Motilal Oswal, we recognize that commodities act as the backbone of the global economy. By including them in your portfolio, you aren't just betting on prices; you are building a shield against inflation and market volatility that traditional stocks and bonds might not provide.
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What are Commodity Mutual Funds?
A Commodity Mutual Fund is a scheme that pools money from investors to gain exposure to the price movements of physical goods. Instead of you having to worry about the purity of gold or the storage of silver, the fund manager handles the technicalities.
In India, these funds typically operate in three ways:
- Direct Commodity Exposure: Investing in physical gold or silver bullion.
- Commodity Stocks: Investing in the shares of companies that produce these goods (e.g., a mining or oil drilling company).
- Commodity Futures: Trading in contracts that bet on the future price of a resource.
Types of Commodity Funds in India
Depending on your risk appetite and goals, you can choose from several varieties available on the Motilal Oswal platform:
1. Gold & Silver Funds (The Safe Havens )
These are the most popular in India. They track the domestic price of precious metals. For instance, the Motilal Oswal Gold and Silver ETFs Fund of Funds allows you to invest in both metals simultaneously, offering a balanced approach to the bullion market.
2. Natural Resource Funds
These funds invest in companies that deal with raw materials like petroleum, natural gas, and minerals. If the price of crude oil goes up, the profits of oil-producing companies usually rise, benefiting your fund's NAV.
3. Future Funds
The most aggressive type, these funds trade in Futures Contracts on exchanges like the MCX (Multi Commodity Exchange). They aim for high returns by speculating on short-term price swings.
4. Index Funds & ETFs
These are passive funds that copy a specific commodity index. They are low-cost and aim to provide returns identical to the market price of the underlying asset, like a Silver ETF.
Benefits of Investing in Commodity Funds
Why should a Motilal Oswal investor consider adding commodities to their portfolio in 2026?
- Portfolio Diversification: Commodities often have a low correlation with stocks. When the Nifty 50 is falling due to geopolitical stress, gold often rises, cushioning your total portfolio.
- Hedge Against Inflation: When the cost of living goes up, the prices of raw materials (commodities) usually rise even faster. Investing here helps protect your purchasing power.
- Professional Management: You don't need to be an expert on global oil supply. Our fund managers at Motilal Oswal monitor global trends, weather disruptions, and trade policies to make informed decisions for you.
- No Storage Hassles: Avoid the risks of theft, locker charges, or making charges associated with physical gold. Your investment is safe in your digital Demat or Mutual Fund account.
Performance Highlights (Late 2025)
The year 2025 has been a historic one for commodity investors in India:
- Silver Revolution: Silver ETFs have been the stars of 2025, with some delivering over 160% returns due to a structural deficit and massive industrial demand for solar panels and electronics.
- Gold Stability: Gold has continued its steady climb, approaching record highs near $4,500 per ounce globally, providing a strong anchor for conservative portfolios.
Taxation of Commodity Funds (2025-26 Rules)
Since commodity funds are considered non-equity assets, they follow a specific tax structure as of the 2025 Finance Act:
- Short-Term Capital Gains (STCG): If held for less than 24 months, gains are added to your income and taxed at your Slab Rate (e.g., 20% or 30%).
- Long-Term Capital Gains (LTCG): If held for more than 24 months, gains are taxed at a flat 12.5% (post-2024 budget revision). Note that indexation benefits have been removed for new investments.
How to Invest via Motilal Oswal
Starting your commodity journey is a 3-step digital process:
- Open/Login Account: Access your account via the Motilal Oswal Rise App or website.
- Select Fund: Navigate to the Commodity Funds or ETF section.
- Start SIP or Lump Sum: You can set up a monthly SIP for as little as ₹500, making commodities accessible for everyone.
Conclusion
Commodity Mutual Funds have redefined how Indians approach hard assets in 2025. They provide the perfect blend of traditional safety (like gold) and modern convenience (digital units). While commodities can be volatile due to global events, their ability to act as a shield against inflation and stock market crashes makes them an essential satellite component for any well-balanced portfolio. At Motilal Oswal, we believe that Buying Right includes looking beyond just equity. By allocating a portion of your wealth to commodity funds, you ensure that your portfolio is resilient, diversified, and ready for whatever the global economy throws its way.