Mining funds lag behind...

While gold index funds have returned almost 10 per cent over the last three months, gold equity funds (investing in mining companies) have not given good returns in the last few months. At present, there are two gold funds, DSPML World Gold Fund and AIG World Gold Fund. Both are fund of funds.

Whereas the former has the mandate to invest most of the assets under management in Merrill Lynch International Investment Funds - World Gold Fund, AIG invests in the units of AIG PB Equity Fund Gold.

DSPML World Gold Fund, launched in September, 2007 has given returns of -4.39 per cent in the last three months and AIG Gold Fund, launched this May, has returned - 9.58 per cent. The returns of the former, though has been a good 27.52.9 per cent since launch.

Analysts say that this is mainly because of the fact that while gold production is expected to stay flat this year, the cost of production has increased in countries like South Africa.

Says Ajay Mitra, managing director, World Gold Council (India subcontinent), "The production of gold is expected to stay flat at around 2,430 tonnes this year." However, costs have increased due to higher energy prices that is adversely impacting the industry.

Also, since many gold mining companies get into forward contracts to stay insulated from price fluctuations, a fall in the prices helps them to get higher returns, but rising prices hurt them.