Thursday, September 14, 2006 10:18 Hrs IST
DSP Merrill propose to introduce gold fund
The FOF will depend chiefly on MLIIF-WGF
DSP Merrill Lynch MF has proposed to introduce an open-ended fund of funds that will invest chiefly in units of Merrill Lynch International Investment Funds, World Gold Fund. It will be benchmarked against the FTSE Gold Mines Index.Named. DSP ML World Gold Fund, the FOF will normally invest at least 80% of its assets in overseas funds while up to 20% may be parked in money market/liquid funds managed by DSP ML, the offer document filed with SEBI has mentioned. MLIIF-WGF has provided an annualized 36.4% over the last 5 years against 25.8% by the benchmark FTSE Gold Mines. The scheme charges 2.25% of entry load for regular purchases. In case of units bought through such regular purchase, a 0.5% exit load will be charged if redemption is taken within 6 months. Mr. Aniruddha Naha would be the fund manager for this scheme.
MLIIF-WGF is an ‘Undertaking for Collective Investment in Transferable Securities (UCITS) III Fund’ approved by Commission for the Supervision of the Financial Sector, Luxembourg, With Merrill Lynch Investment Managers (Luxembourg) as the management company. The fund tries to maximize returns by investing mostly in the equities of companies worldwide whose main business activity is gold mining. It is also free to invest in stocks of companies whose business relates to other metals. It does not hold gold or other metals in a physical form.
The FOF will depend chiefly on FOF MLIIF-WGF, which in turn allocates mainly to equities of companies that are primarily into gold mining. There will be a currency risk as well, as returns to investors will be the result of a combination of returns from investments and from movements in exchange rates. If the rupee appreciates vis-à-vis the US dollar, the extent of appreciation will lead to reduction in the yield to the investors. If it appreciates against the dollar by an amount in excess of the interest earned on the investment, returns can even turn negative. A country risk will arise from the inability of a country to meet its financial obligations. It is the risk encompassing economic, social and political conditions in a foreign country, which might adversely affect the interests of the FOF. Also, there may be investments in certain smaller and emerging markets, which are typically poorer or less developed. In fact, substantial limitations may exit in certain countries with respect to MLIIF-WGF’s ability to repatriate investment income, capital or the proceeds of sales of securities by foreign investors.