Silver ETF brings another investible item for investors: Experts

Chirag Mehta, Senior Fund Manager – Alternative Investments, Quantum Mutual Fund said that in case of gold exchange-traded funds, silver ETFs will also offer the benefits of price efficiency, liquidity and convenience to retail investors. Currently, Indian mutual funds are allowed to launch ETFs tracking gold. Gold ETFs collectively manage assets ₹16,350 crore till August 31, 2021.

In a significant move, SEBI’s board on Tuesday approved amendments in mutual fund rules to enable introduction of silver ETFs with certain safeguards in line with the existing regulatory mechanism for gold ETFs. This has been a long-standing demand of commodity market participants. CPAI President Narinder Wadhwa said the move would expand the bouquet of ETFs.

“Silver ETFs will be supported by physical silver. This will also increase the current volumes of silver and bullion indices as there will be multiple arbitrage opportunities with the introduction of silver ETFs,” he added.

Gold ETFs have been in existence since 2007 and have seen exponential growth in the investor base. Gold along with silver has been the preferred investment class for many decades. He further added that earlier metals like silver platinum, platinum were a way to diversify one’s portfolio from a single precious metal.

According to Mehta of Quantum MF, the introduction of Silver ETFs is a good development for retail investors who are looking for investment exposure in silver as an asset class. However, investors need to understand that the portfolio diversification benefits of gold are much greater than those of silver and should be evaluated on the basis of its investability. For now, we’ll have to wait for the Silver ETF’s operating details to come out.

Morningstar India Director – Manager Research Kaustubh Belapurkar suggests that investors should be prudent with their investments and allocation as silver prices like any other commodity can be volatile. While the passive investing culture was developing decently over the years, the ETF market size still accounts for 11 percent of the mutual fund industry’s assets (AUM) under management.

Welcoming the launch of Silver ETFs in India, Deepak Singh, Chief Business Officer, Reliance Securities said that silver has been a preferred physical investment class like gold for millions of Indians over the years. “While we are not sure how fast Silver ETFs will grow in India, given the fact that Gold ETFs were launched in 2007 and still account for only 0.45 per cent of the industry’s AUM. This will help the fund to offer additional products to investors,” he said.

Swapnil Bhaskar, Business Head, Neo Money said that the launch of Silver ETF will expand the options available for investing in commodities through stock exchanges. This could be a game-changer as it deepens the securities market for investors. He said that Indians have a deep love for buying gold and silver. Silver ETFs will give them a seamless way to buy silver. Unlike in the case of physical holdings of silver, they do not have to worry about its purity or theft, as the underlying asset will be managed by professional vault managers.

MarketPulse chief product officer Arshad Fahoum also believes silver ETFs can provide long-term investors with a great opportunity to diversify their existing portfolios. This is particularly beneficial because investors looking to gain exposure to silver prices can now overcome the drawbacks of buying physical silver; As such carry the cost and risk of theft, he said. “Silver ETFs will make investing in silver as simple as buying or selling stocks and, therefore, will bring in increased liquidity. Choosing a silver ETF will be a good decision even for risk-averse commodity investors, as silver derivatives carry a lot of risk. will be filled, considering their investor profile,” he said.

More importantly, silver as a precious metal has many industrial uses, which makes it a fairly stable store of money over the long-term horizon, which in turn makes it a strong hedge against stocks or bonds. “With equity markets at all-time highs, rebalancing one’s portfolio to invest a small portion in silver ETFs is a prudent approach,” Fahoum said.

Globally, silver is traded as an integral part of an investor’s portfolio. In India, investors invest in silver in a number of ways such as the traditional route – silver bars, silver coins and silver jewellery, and if they do not wish to deal with physical silver, they can opt for silver paper forms such as Invest through silver futures etc.

“The regulator is expected to continue the same practice of getting fund houses to create physical silver bars for silver ETFs. By using this physically backed strategy, it can eliminate the issues of fund contango and backwardation. and can give investors more realistic pricing of the metal, said Preeti Rathi Gupta, Founder, LXME.

He added that the physical market for silver in India is deep enough to support silver, mitigating the influence of external factors, causing price volatility. Although silver and gold operate in parallel, he said silver has its own market dynamics. Therefore, silver can be a great success in the financial markets even for retail investors.