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DSP ML World Gold Fund - Should you buy?

Published on Tue, Aug 21, 2007 at 15:40 | Source : Moneycontrol.com

Updated at Tue, Aug 21, 2007 at 15:43

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DSP Merrill Lynch World Gold Fund will invest in its parent Merrill Lynch International Investment Funds - World Gold Fund (MLIIF - World Gold Fund) which in turn invests predominantly in gold mining companies around the world. Experts believe that it is a product that combines the two themes of geographical diversification and an indirect exposure to gold.

Investment expert Sandeep Shanbhag believes that a notable feature of the parent fund is that it has beaten its benchmark FTSE Goldmines index for the past twelve years. DSP ML is upbeat about the prospects of gold as increasing inflation across the globe and also the volatility in financial markets will mean an increased emphasis on gold as a safe asset class. Also, the fund house holds the view that it is within the realms of possibility that central banks of the world may revert back to the gold standard for parking their reserves. For example, if China decides to shift even 1% of its reserves to gold, it could mean a rise in global demand by 18%. (View - New Fund Offers open NOW)

"While all this is almost akin to speculation about the future, the fact remains that this fund does offer a cross border diversification to investors who are largely invested in domestic equity", Shanbhag adds.

Also, this fund has an edge over Gold ETFs as the portfolio of gold equities is actively managed as against the passive management in Gold ETFs, says Investment advisor Hemant Rustagi.

However, Rustagi warns that while the fund has its utility in terms of asset allocation, it may not be able to provide equity type of returns.

Also, a couple of points that investors should keep in mind are the tax angle as also the risk of dollar depreciation. Shanbhag elabortes:

From the taxation point of view, this fund will not enjoy the tax benefits that equity funds are eligible for. Long term gains would be taxable at 10% and short term gains would be taxable as per slab rates applicable to the investor.

Secondly, as your funds would eventually be invested in dollar denominated assets, any currency fluctuation would directly affect your rupee return. For example, the US dollar has depreciated by over 8% in the last 3-4 months against the rupee. Such appreciation of the rupee directly eats into a dollar return and investors should be aware of the currency risk that they undertake when they invest in this fund.

- Reena Prince

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