The rising gold prices have fancied investors attention and is being increasingly looked on as an part of portfolio.  After Gold ETFs , now there is option for investing in DSP Merrill Lynch World Gold Fund which invests in gold mining companies internationally.

This is an open ended fund of funds scheme, and is unique as for the first time this investment option is available to Indian investors. The fund would invest in the equities of companies worldwide whose main business activity is gold mining. Around 80% of the corpus would be invested in overseas mutual funds.

The fund is attractive as profitability of gold mining companies has increased with increase in gold prices thus giving superior returns. With increased jewellery demand in Asian countries and increase in gold buying by Central Banks, the price of gold is likely to show an upward move.

As compared to Gold ETFs, the fund scores as Gold equities can grow themselves organically and through M&A while Gold ETFs cannot. Also, the active management further enhances chances of better returns than Gold ETF.

Though the investments in such funds have certain downsides too. The fund is passive to certain extent as it depends mostly on Merrill Lynch International Investment Funds  - World Gold Fund, though this fund have outperformed its benchmark FTSE Gold Mines Index. Also, the returns are highly dependent on foreign exchange rates.

Finally with the very little knowledge about gold mining companies internationally and what is their exact business model, Indian investors would be a little apprehensive about investing in such fund.