)
Warren Buffett once famously said “be fearful when others are greedy and greedy when others are fearful”. Internationally, those who follow this principle are putting their bets on stocks of gold mining companies.
Rocked by three year of mining downturn, junior gold mining companies have gone into hibernation reducing themselves to skeleton staff, according to The Wall Street journal.
Investors have, however, are showing increasing interest in the stocks of big gold mining companies. These set of investors believe that gold prices have bottomed out at $1,200. And every time the metal went below this price, it rebounded quickly in the past two years.
They are also hoping that the demand for gold would soon pick up due to low interest rates, problems in Europe, or demand from China. Above all, they believe that due to the slowdown, these companies are available at a bargain today.
ALSO READ: Restrict exposure to sectoral ETFs
If you are an investor based in India and want to benefit from this trend, there are options for you. Two mutual fund houses have three funds that look at such companies. These include DSP BlackRock World Mining Fund, DSP BlackRock World Gold Fund, and Kotak World Gold Fund.
Rocked by three year of mining downturn, junior gold mining companies have gone into hibernation reducing themselves to skeleton staff, according to The Wall Street journal.
Investors have, however, are showing increasing interest in the stocks of big gold mining companies. These set of investors believe that gold prices have bottomed out at $1,200. And every time the metal went below this price, it rebounded quickly in the past two years.
They are also hoping that the demand for gold would soon pick up due to low interest rates, problems in Europe, or demand from China. Above all, they believe that due to the slowdown, these companies are available at a bargain today.
ALSO READ: Restrict exposure to sectoral ETFs
If you are an investor based in India and want to benefit from this trend, there are options for you. Two mutual fund houses have three funds that look at such companies. These include DSP BlackRock World Mining Fund, DSP BlackRock World Gold Fund, and Kotak World Gold Fund.
If you look at these funds’ returns in the past one year, they have performed worse than gold. DSP BlackRock World Mining Fund gave -25.99%. DSP BlackRock World Gold Fund has -27.14% returns and Kotak World Gold Fund returned -34.04%. Compared to these, returns from investment in gold exchange-traded funds are about -14.59%.
If the gold price starts picking up, these funds can give better returns compared to the yellow metal. For example, in 2008 and 2009, when gold prices started shooting up due to global financial meltdown, some of these funds returned over 145% in one years when returns all other financial instruments were negative. The investors can also benefit if rupee becomes weaker against the dollar as these are international funds.
ALSO READ: Avoid banking sector funds for now
Mutual fund experts said that if an investor wants to go for these funds, they should do it cautiously. These funds, termed as alternate investments, should not be more than five% of the portfolio. In gold mining funds’ case, experts said that it can be as low as two%.
ALSO READ: Avoid banking sector funds for now
Mutual fund experts said that if an investor wants to go for these funds, they should do it cautiously. These funds, termed as alternate investments, should not be more than five% of the portfolio. In gold mining funds’ case, experts said that it can be as low as two%.
As they are international funds, their taxation is similar to debt funds. This means, if you sell it within three years, the entire gain will be added to the income and taxed as per the slab. After three years, the investor needs to pay either 10% tax without indexation or 20% after accounting for inflation.
