This is one more in a long list of foreign funds that are tapping Indian investors’ savings when Indian mutual funds have been unable to sell Indian funds

Moneylife Digital Team

Deutsche Mutual Fund has announced the launch of DWS Gold and Precious Metal Offshore fund. The investment objective is to generate capital appreciation by investing predominantly in units of DWS Invest Gold & Precious Metals Equities Fund. The scheme would allocate 90-100% of assets in DWS Invest Gold & Precious Metals Equities Fund or other similar overseas mutual fund schemes with medium- to high-risk profile. It would further invest up to 10% of assets in money market instruments with low- to medium- risk profile.

In recent weeks, there has been a rush of foreign funds queuing up to tap Indian savings for foreign products. (Read, 'Another overseas fund from DSP BlackRock, this time it's Chinese'.)  DWS is cashing in on the high interest in gold. DSP BlackRock launched DSP Black Rock World Gold fund in August 2007. The fund predominantly invests in units of BlackRock Funds- World Gold Fund. Similarly, AIG launched AIG World Gold fund, in May 2008, which invests in companies engaged in the extraction, processing and marketing of gold through an international fund.

Global funds offer diversification benefits, investing in stocks (biotech, technology, energy, agriculture and mining, etc.) that an Indian investor may not be able to buy through investing in domestic schemes. However, funds that put money in foreign stocks don't necessarily offer diversification. For, markets around the world have been moving in sync over the last five years and non-correlated assets are not easy to find.

As with other kinds of products, foreign funds are not about returns alone. There are risks too. In the case of DWS, there is a risk of concentration in a single volatile sector. The top five holdings of DWS Invest Gold and Precious Metal Equities fund as on 29 April 2011 are Goldcorp, Newcrest Mining, Agnico- Eagle Mines, Newmont Mining and Yamana Gold.

The fund will be benchmarked against S&P BMI Global Gold and Precious Metals index. The scheme will charge a 1% exit load if units are redeemed within 12 months from the date of allotment.

Unfortunately, the S&P BMI Global Gold and Precious Metals index has not performed that well. From 1 May 2006 to 30 April 2011 the Sensex gave an annualised return of 11%, while the S&P BMI Global Index gave an annualised return of 4.01% in the last five years.