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Opportunity knocks yet again… …the Midas Touch! GOLD – jewellery, coins, bars, ETFs and now FoFs in goldmining companies…the different avenues beckon the investor. The World Gold Fund from the DSP Merrill Lynch’s stable is an FOF that takes exposure to gold mining companies worldwide unlike gold ETFs that invest in physical gold. It is the first of its kind in India... DSP Merrill Lynch World Gold Fund is an open ended Fund of Fund that invests at least 90% of its assets in units of Merrill Lynch International Investment Fund’s World Gold Fund while up to 10 per cent may be parked in money market securities or money market/liquid funds managed by DSP ML. The $5.4 billion World Gold Fund, launched in 1994 by Merrill Lynch, invests predominantly in global conglomerates engaged in gold mining (81 per cent) and, to a lesser extent, in platinum (13 per cent), silver (4 per cent) and diamond (2 per cent) companies. A quarter of the fund’s exposure is in North America, another quarter in South Africa, nearly 20 per cent in Australasia, 8 to 9 percent each in Europe and Latin America and the balance in China and the former Soviet Union. It is benchmarked against the FTSE Gold Mines index. The fund is galloping at a lightning pace so much so that it has hogged the limelight with its stellar performance since its launch in August, 2007. Wielding the wizard’s wand …
· The two themes of geographical diversification and an indirect exposure to gold are combined in this product. …or a dicey deal? · Geopolitical risk and currency fluctuation may eat into your returns. · This fund does 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 you. Gold – where are we in the new bull market?With international gold prices close to a three-decade high, is this really the right time to buy gold? From the perspective of fundamentals, gold has shown strong signals to support its recent price rise. With a steady fall in production and a corresponding increase in demand, the demand-supply gap is widening. There has been dual demand in the recent past with central banks steadily increasing their exposure to gold as a hedge against the weakening dollar and strong consumption demand for gold jewellery and ornaments being generated from the Middle-Eastern countries, India and China. Historical price trends show that the last bull-run for gold was between December 1969 and 1981. One can divide this cycle into three phases, where Stage 1 (1969-1972) saw gold prices move up gradually as the US dollar weakened. In Stage 2 (1972-1978), the price gained momentum as global investment demand witnessed a rise. In Stage 3(1978–1981) as a result of speculative trading, gold shot up quite rapidly. We are now witnessing the second phase in this cycle for gold. Fall in gold production across existing gold mines, rising consumption demand for gold, renewed interest from central banks, the surge in Gold ETFs and the possibility of a weaker dollar suggest that gold prices will gain momentum over the next 3-5 years although there may be short term volatility. Minting money from mining – the modern Midas touch! While bullion has delivered a 147 per cent return (absolute) in rupee terms over 10 years, the Merrill Lynch World Gold Fund has delivered 615 per cent over the same period! The outperformance has also been sustained for 5-, 3- and one-year periods. All said and done, it is a unique international investment opportunity so far not available to Indian investors. It is an ideal way for you to get exposure to the gold market over time. In view of the high volatility prevailing in the stock market, the World Gold Fund will add a golden edge to your portfolio by providing diversification across asset classes and geographies with the advantage of equities.
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n Mrs. Lalitha Muthu e-mail : lalitha_ppm@yahoo.com |
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Articles by Lalitha Muthu |
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World Gold Fund
Of Fund of Funds and Multimanagers… |