DSPML World Gold Fund - investing in Gold mining companies through an International Fund

Just wanted to share an exciting new product which will shortly be available from DSP Merrill Lynch which is a formidable alternative to ETFs. The details will be sent out as we hear more but these are the salient features:

Name of the Scheme: DSPML WORLD GOLD FUND investing in Gold mining companies through an International Fund.

Open-ended Fund which closes 27th July 2007 with Growth and Dividend options.
So far not available to Indian Investors - Accessing one of the Largest Funds in its category (Merrill Lynch International Investment Funds - World Gold Fund having corpus of USD 5405 Million.

How has been the performance of MLIIF-World Gold Fund?

Out-performed Gold (Bullion Investment) by 268% and S&P CNX Nifty by 127% (in absolute terms) between 1994 - 2007.
Just to give an example, an investment of Rs.1 lac on 30-Dec 94 would have given the following Absolute Returns and CAGR in the following:

S&P CNX Nifty - Abs.Return 263.35%, CAGR 10.94%
Gold Bullion - Abs.Return 122.86%, CAGR 6.66%
FTSE Gold Mines (Cap) Index - 47.19%, CAGR 3.16%
MLIIF - World Gold Fund - 390.71%, CAGR 13.66%

More than 12 years of performance track record - AUM of Rs.22017 crores (USD 5405 Million)
AAA rated- S&P Fund Research, AAA rated- Forsyth Partners

What are the other salient points?

A "Best Ideas" rather than benchmark driven portfolio
Invests in Gold (no less than 80% at any time) mining companies which are listed, besides Diamond mining companies, Silver mining companies, and Platinum mining companies - situated in South Africa, North America, China, Latin America, Europe, Australasia and Former Soviet Union.
Correlation with MSCI World Index is -0.11 (negative) and Correlation with S&P 500 is 0.07 (negligible) making it a good case for Asset-Class diversification beyond Indian Equities, Commodities, Debt, Physical Gold and ETFs, Real Estate and International Equities.

Why invest in Shares of Gold Mining Companies?

Because of negative or negligible correlation with stock market as outlined above.
Gold prices are going up due to increasing demand-supply gap
Shares of Gold Mining Companies are leveraged to the gold price, possibility of superior performance and dividends.
Gold Mining Companies have a multiplier effect on their profits vis-a-vis Gold price (To illustrate, today's gold prices are around USD 650 per troy oz. but the cost of production for mining companies has almost been stagnant for the last several years at USD 550 per troy oz.).
Increase in Gold price by 23% leads to increase in profits of Gold Mining companies by 150% according to base case and other scenarios.
M&A Activity in the Gold Mining Sector is rising which leads to premium ratings on growth stocks - Drivers behind consolidation remain and private equity is starting to take interest.

How is it different from Gold Bullion and Gold ETFs?

In Gold Bullion, you buy physical gold, participate in gold fundamentals with passive management with lot of liquidity but no diversification
In Gold ETFs, you buy physical gold kept with custodian (Certificate of Holding etc), participate in Gold fundamentals with passive management with daily liquidity but no diversification.
In DSPML World Gold Fund - you invest in Gold Mining Companies through MLIIF-World Gold Fund, participate in gold fundamentals, with ACTIVE management, with daily liquidity but achieve geographical diversification, exposure to other precious metals and also have value unlocking of stock ratings and re-ratings.
All in all, a good diversification and one of the most differentiated products on alternative investing strategies.