Should you buy DSP Merrill Lynch World Gold Fund NFO?

From SEBI to financial planners, magazines to forums, when it comes to NFO, everyone's first question is - What's New? What's Unique?

A fund of funds scheme, investing in gold mining companies through an international fund is undoubtedly unique and new to Indian mutual fund industry. But, is that enough for us to put our money (edit: hard earned money)?

BTW it's not an EFT.

Scheme Objective: DSP Merrill Lynch World Gold Fund, is an open ended fund of funds scheme, investing in gold mining companies through an international fund, and the primary investment objective is to seek capital appreciation by investing predominantly in units of Merrill Lynch International Investment Funds - World Gold Fund (MLIIF – WGF). The Scheme may, at the discretion of the Investment Manager, also invest in the units of other similar overseas mutual fund schemes, which may constitute a significant part of its corpus.

Why invest in DSP Merrill Lynch World Gold Fund?

• A ‘unique’ international investment opportunity so far not available to Indian investors
• Access to Merrill Lynch International Investment Funds (MLIIF) - World Gold Fund,
  
• Access to a highly regarded and experienced investment team, one of the industry’s acknowledged specialists managing over US$ 34 bn (Rs. 1,38,550 crore)* in assetson behalf of investors
• Gives your investments international diversification
• Profitability of gold mining companies tends to increase with a rise in the price of gold
• Benefit from the growth potential of equities and the strong fundamentals of gold

Performance of MLIIF - World Gold Fund
Since this fund is going to invest in Merrill Lynch International Investment Funds (MLIIF) - World Gold Fund, it makes sense to have a look at its performance too.

Here is the S&P's report on World Gold Fund.


Performance of the Benchmark: FTSE Gold Mines Index

With an approximate absolute return of less than 150% over a period over 4 years, it lacks far behind general equity diversified funds in India. Check current performance here.


Should you invest?
DSP Merrill Lynch World Gold Fund has advantages like international diversification but seems to be highly volatile and risky compared to returns record. However, just for the sake of diversification I won't mind it forming a very small percentage of my portfolio.

Lumpsum SIP - Invest lumpsum and get the SIP advantage too

Company Bonus, sudden profits, matured FD, Insurance bonus etc. There are many a times when we have lumpsum money or surplus cash that we don't need for several years. Best way to keep such money for long term is equity based mutual funds. But then investing a lumpsum in equity funds at one go is not only a bad idea, it's a very bad idea.

Keeping that money in a savings account which virtually gives us a negative return (interest - inflation) is also a bad idea. Then what to do?

Answer is simple - Lumpsum SIP.

It is investing lumpsum in a low risk instrument and systematically transferring to an equity mutual fund. Lumpsum SIP can be explained in the following steps:

1. Invest lumpsum in very low risk mutual funds like short term debt plan
2. Create a systematic withdrawal plan (SWP) from the debt fund
3. Create an equity diversified (or whatever) systematic investment plan (SIP) of the same amount you'll get every month from SWP

It might look complicated but it is not. In fact on sites like ICICIdirect.com, you can automate the entire process. You'll have to create this plan once and you don't even bother from second month. Everything will be automatic.

Just make sure you invest in a debt fund with no entry or exit load otherwise you might actually lose money.

Invest in Mutual Funds Online

Writing cheques, visiting branches or tracing agents is history now. Investing in Mutual Funds online not only gives you convenience of online trading without filling any forms but also gives you an advantage of centrally managing all funds and track/analyse them with portfolio tools.

Here are few websites that allow you to invest online and some of them even offer advanced options like Systematic or Automatic Investment Plan and Automatic Withdrawal Plan.

• ICICIDirect
• IDBI Paisa Builder
• IndiaInfoLine
• UsecTrade
• Sharekhan
• Reliance Money

There are several banks like HDFC, Citibank etc that allow you to directly invest from your account online. Check with your bank for details.

First Job? Save tax and become rich with mutual funds

Planned or by chance, current income tax laws of India have opened a platform for everyone to get rich. We are allowed to invest an amount of Rs. 1 lac every year in certain products and claim tax deduction on the same. Traditionally people used to invest such funds in insurance/NSC/PPF etc and were satisfied by just saving tax. But then at that time, allowed investment limit was much less and available options limited.

However, today the objective is not just to save tax but to be rich as well. This 1 lac investment can serve three very important functions required to become rich & wealthy, especially for a salaried person.

1. Save Tax
2. Create Long Term Wealth
3. Induce a disciplined savings habit



Make maximum out of your investments...
Investing in ELSS or Tax Saving Mutual Funds provide the required boost to your investments. Though they are risky, it has been seen that they give healthy returns if you invest for a long period. Investments in ELSS funds should NEVER be bulk investments at the end of the year. The most advisable and by far the best way to invest is through SIP or automated monthly investment. If you wish to invest Rs.60,000 in ELSS every year, make SIPs of Rs.5000 every month. Long term investment through SIP is considered to be the key to wealth.


Why ELSS?
Though there are many investment products that are eligible for tax deductions, ELSS gives you the opportunity to earn maximum return and has the shortest lock-in period of 3 years amongst all such investment options. However, it comes with an inherit risk of investing in equity markets. You can still be satisfied about the fact that your money is managed by talented and experienced professionals, closely monitored and regulated by bodies like SEBI.

How much will I earn?
Well, no one can predict how stock markets are going to perform. Though that doesn't guarantee any future returns, you can have a look at past-performance of funds to get an idea of how much you can earn.

Let us assume you decide to invest Rs.60,000 of your 1 lac limit in ELSS funds as systematic investments of Rs.5000 every month (called SIP). Let us see how much you can earn...

At the end of	Average Return
	15%	25%
5 yrs	Rs.4,31,654	Rs.5,46,574
10 yrs	Rs.12,99,863	Rs.22,14,585
20 yrs	Rs.65,58,535	Rs.228,39,513

Don't forget all this with just an investment of Rs. 5000 every month. Imagine if you invest more, what this amount could be..

Which ELSS funds to invest in?
There are three options available when you invest in Mutual Funds. You can choose to keep dividends, re-invest dividends or choose the growth plan and let your money grow. I prefer Growth option as it gives exactly what we are looking for - Long Term Wealth Building.

There are several ELSS funds available. You can choose any as per your investment need. However, it is advisable to have maximum 3-5 ELSS funds in your portfolio. Here are three good funds in case you are unable to decide.

1. HDFC Tax-Saver
2. ICICI Prudential
3. SBI Magnum Tax Gain Scheme


For a list of available ELSS funds and their returns see MoneyControl

What is an ideal Debt:Equity ratio?

There are many factors that go into deciding your Debt:Equity ratio. Your financial goals, responsibilities, risk-appetite, earnings, career etc to name a few.

However a general thumb rule is.. Your equity or high risk part should be ideally 100 - your age... Hence, if your age is 25, your Debt:Equity ratio should be 25:75

And as you should have guessed, it should be adjusted with your growing responsibilities and age.