Internationally, analysts are becoming bullish on big gold mining companies. They feel the worst is behind, after a three- year downturn. During this period, they have streamlined operations; some of them have even diversified, and are poised for better growth. This optimism is built on the hope that demand for the metal will rise as China's economy picks up after, assurance from Premier Li Keqiang recently.

For investors in India to benefit, there is an option to either bet on gold mining funds or the metal itself. When a person looks at the stocks of gold mining companies, they are only diversifying their equity portfolio. It's not a separate asset class. Gold, a hedge against inflation and equities, is a different instrument ( commodity).

The returns on gold mining stocks depend on the movement in gold prices. If the gold price rises, these stocks will give better returns than the metal and vice versa. An investor should bet on these stocks only if they believe gold prices, correcting for two years, are going to see an upward trend.

There are three international funds that invest in stocks of gold mining companies. In the past year, DSP BlackRock World Mining Fund, which also invests in stock stocks of gold mining companies, gave - 25.99 per cent returns. DSP BlackRock World Gold Fund, too, is in the negative territory with - 27.14 per cent returns. One- year performance of Kotak World Gold Fund is - 34.04 per cent. Compared to these, returns from investment in gold exchange- traded funds ( ETFs) are down - 14.50 per cent. Clearly, the mining companies are falling much faster in a falling regime. Similarly, in a rising market, they do much better. For example, in 2008 when gold ETFs gave 50– 60 per cent returns, international gold mining funds' returns were in three digits.

Experts say investors should keep international funds as part of their portfolio, to about 10 per cent, to diversify equity investments geographically but gold mining funds are not the best option. One should rather opt for markets such as the US, which does not have much correlation with performance of the India stock market. He suggests it's better for investors to look at gold exchange- traded funds to benefit from movements in gold prices.

When a person invests in gold, he is exposed to only one risk, related to the price of the metal. When he invests in a mining company, there is additional risk related to the stock price movement.

She adds that although gold mining companies have diversified, their diversification is mostly into mining other metals. And, world over, commodities that are mined are in a down trend.

The taxation of both categories are also the same. They are taxed as debt. This means if you sell within one year, the gains are clubbed with the income and taxed according to the slab. To reduce the tax outgo, an investor needs to hold it for three years, after which he will need to pay long- term capital gains tax. This is calculated flat at 10 per cent of the gains or 20 per cent with indexation benefit