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What are Precious Metals Mutual Funds?

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  • Written By: Jim B.
  • Edited By: Melissa Wiley
  • Last Modified Date: 10 February 2020
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Precious metals mutual funds are pooled investment funds that concentrate their investments on precious metals like gold or silver. Such funds attract multiple investors, who then share in the profits and losses accumulated by the multiple precious metals securities within the funds. The advantage of precious metals mutual funds is that they allow investors to diversify portfolios into a sector of the market that often remains strong even in difficult financial times. Companies that deal in gold are the most popular targets of these funds, although companies that deal in silver, platinum, and other base metals may be targeted as well.

Diversity within a portfolio is the goal of many investors who wish to spread their investment capital around the market to find values and to avoid a huge letdown brought on by the collapse of one market sector. For such investors, mutual funds, which dabble in multiple securities, can be a one-stop shopping investment. Precious metals mutual funds allow investors to target multiple companies in a sector of the market that often rallies when the rest of the market slumps.

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One of the benefits of any mutual fund is that it is professionally managed, meaning that the responsibility for choosing the securities within is removed from the investor. Precious metals mutual funds will have their goals and investment strategies detailed in their investment prospectus, which allows investors to see if a specific fund is right for them. Investors must pay a fee for the management of the fund, which means that not all of their capital goes straight into the investment.

The overall value of the fund depends on the net value of the assets within, which, in the case of precious metals mutual funds, will all be in some way related to the precious metals market. Gold companies are the standard for many precious metals funds, as the price of gold and the success of gold mining companies often stands up against overall market upheaval. Other funds may be devoted to silver, platinum, or other base metals, or a fund can even deal in a combination of several different precious metals.

Even if one or more of the securities in precious metals mutual funds are struggling, other strong securities contained in the funds can help to rally their overall value. In that way, investors get portfolio diversification in a strong portion of the market while mitigating the risk of their investment. That doesn't mean such funds are immune to poor performance, but in general they are a relatively safe and potentially profitable investment.

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