| Exchange Traded Funds | | | | taxed at a rate of 60 percent for long-term gains |
| In recent years, there is one type of fund that | | | | and 40 percent for short term; this is true not |
| has hit the commodities market creating a major | | | | matter the holding time period. There is also a tax |
| impact. This comes in the form of exchange | | | | on the interest. Capital gains also cannot be |
| traded funds. United States markets alone hold | | | | deferred and they are taxed to a maximum of |
| more than $10 billion in assets, as of 2009. The | | | | 23 percent. |
| investor has many choices when it comes to | | | | Exchange-Traded Funds Linked to Commodities |
| using these funds. They use them to purchase | | | | Indexes |
| exposure to individual commodity sectors, gold, oil, | | | | There are only two broad-based commodity |
| broad-based commodity futures indexes, and | | | | indexes; ishares GSCI Commodity Index and |
| silver. What makes these funds so popular is the | | | | Trust DB Commodity Index Tracking Fund. When |
| fact that they are very easy to purchase. They | | | | researching these funds, an investor will find that |
| are purchased as an exchange-traded fund as an | | | | they use futures, including collateral and yield |
| investor would purchase any other security. | | | | interest loans, which charge the same expenses. |
| Exchange traded funds are considered very | | | | There are some differences between the two |
| affordable because there is no commission charge | | | | funds. The first difference is that DB Commodity |
| for purchase and they cost approximately 75% | | | | Index Tracking Fund only tracks six commodities |
| less than a commodity mutual fund. | | | | while ishares GSCI Commodity Index Trust will |
| Exchange-Traded Funds Linked to Individual | | | | track a more simplified index of 24 components. |
| Commodities Futures | | | | The roll strategies between the two indexes are |
| Futures are very popular with investors, which | | | | another difference. DBC will look at 13 months for |
| can be considered the home of | | | | the highest yield, instead of rolling the expiring |
| commodities-linked exchange trade funds. The | | | | differences to the next month available. iShares, |
| way this works is that this type of fund will buy | | | | on the other hand, uses a five year contract, |
| futures with leverage, but they will only offer a | | | | known as CERF kind of futures contract. The |
| small part of the cost of the contract. Then the | | | | advantage to this is that CERF contracts will |
| remaining balance will go to treasuries, who will in | | | | reduce trading costs. |
| turn generate income from the interest that is | | | | While both funds will require taxes to be paid on |
| accumulated. When an investor begins to inquire | | | | their interest income, the GSCI Commodity Index |
| about the return he or she will get on their | | | | fund are benefited with special long-term |
| investment, the answer can be increasingly | | | | contracts where the annual tax can be dodged. It |
| complicated. This is because it is based on many | | | | is important to mention that there is some |
| different contingencies that begin with roll yield, | | | | controversy on this subject, however, the IRS |
| collateral interest income, and ends with any | | | | has not issued their final ruling on its capabilities. |
| changes in spot price. | | | | Exchange-Trade Funds Linked to Commodity |
| Exchange-Trade Funds Taxes | | | | Equities |
| This can be a very tricky subject when it comes | | | | Commodity-focused equities are considered a |
| to exchange-trade funds. Essentially, the IRS | | | | good investment for those who are looking for |
| requires investors to sell their exchange-traded | | | | corporate upside or leverage. This type of fund is |
| funds by December 31 of each year. It is | | | | also high in oil exposure. It is important to |
| important to remember that if the fund is up then | | | | remember that there is a high risk of corporate |
| taxes will be owed. This is because there is no | | | | malfeasance, even though the fees are low with |
| deferment when it comes to gains on commodity | | | | this type of investment. |
| futures. It is vital to remember that all gains are | | | | |