Tuesday, February 17, 2009

is DSPML World Gold Fund a Good buy?

Lot of my clients keep asking me Whether They should Buy DSP/AIG World Gold Fund. Here is my take on the same.
Investing in gold stocks allows investors to benefit from the growth potential of equities and the strong fundamentals of gold. This is the fund’s main investment premise. When gold prices rise, the operating profits of gold mining companies rise by a greater proportion. As a result, stocks of gold mining companies can significantly outperform gold as an asset class.

I personally believe that it is a product that combines the two themes of geographical diversification and an indirect exposure to gold. Another 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%.
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

While the price of gold is off its earlier highs, the fund continues to predict a strong rally in gold prices on the back of significant investment demand from Central Banks and investors, as they respond to rising inflation and a weakening dollar.

According to Black Rock, stocks in its portfolio have also underperformed because some mining companies have hedged their recovery prices and have not been able to really benefit from rising prices. With many of these companies de-hedging, they will be better placed to capitalise on the next leg of the gold rally.
While everyone is entitled to his/her opinion, I feel that having a Small Percentage of DSPML/AIG World Gold Fund in your portfolio will only enhance the returns and asset allocation and diversification in your portfolio.
Best of luck,
Srikanth Shankar Matrubai.

Visit http://goodfundsadvisor.blogspot.com for More Detailed Mutual Fund Advise.

1 comment:

Sandy said...

It is really quality & outstanding post. keep it up!

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