MUMBAI: DSP World Gold Fund, a mutual fund investing in gold mining stocks, has soared by around 20% in the past three months. The price of gold in rupee terms has risen by around 7% over the same period. Over longer time frames however, the fund has failed to outperform gold in a consistent manner. For instance, the fund has delivered a return of 0.83% over the past 10 years compared to 7.97% compound annual growth rate or CAGR delivered by the precious metal.
A comparison of DSP Gold Fund with India’s largest gold ETF, Nippon India ETF Gold BeES is instructive. Both schemes were launched in 2007. ETFs are required to buy and hold physical gold against the units they issue and track the price of gold reasonably well. Gold staged a rally from 2007 to 2012 after seeing a brief dip during the global financial crisis. However, in this period, DSP World Gold Fund lagged sharply behind GoldBeES with a 10.36% CAGR compared to 27.31% for GoldBeES.
The period between 2007-12 was also the last phase of a multi-decade supercycle in gold. Thereafter, the precious metal was sluggish during 2014-18. From 1 January 2014 to 1 January 2018, Nippon India ETF GoldBeES gave a return of -0.94% CAGR. Over the same period DSP Gold Fund did marginally better with a 3.10% return. In the next 3 years however, gold rallied smartly with GoldBeES delivering 18.35%. The DSP Gold Fund lagged behind, with a 16.74% return, shows data from Value Research.
DSP World Gold Fund feeds into Blackrock Global Funds – World Gold Fund and is benchmarked against the FTSE Gold Mine Index. It has assets worth ₹851 crore. Gains in the fund are taxed at slab rate for holding periods shorter than three years. For longer holding periods, they are taxed at 20% with the benefit of indexation. This is on par with the taxation of gold itself. Investors who can lock in their money into gold for long time frames have a third, more tax efficient option. Sovereign gold bonds issued by the Government of India also track the price of gold and are tax free if held to maturity (8 years). They also pay out 2.5% interest. However, the interest component is fully taxable at slab rate.
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