Silver lining for sliver ETF funds in India

Markets regulator Sebi has approved a slew of new measures recently. Apart from frameworks for gold, social stock exchanges, it also approved the introduction of silver Exchange Traded Funds, or ETFs. Previously, silver investment was limited to physical jewellery, coins, and bars. Silver ETFs will provide investors with new ways to invest in this commodity. As such, it is a commendable initiative by industry participants.

“This will be a gamechanger in a way, wherein investors will have avenues and instruments to invest in an asset class, and ETFs worldwide are known to attract much liquidity. This means that the investors can now choose silver as an alternative investment option depending on the need, desire, and attractiveness of the asset, the way they can choose investing in gold via physical, digital, derivatives, and ETFs,” said Prathamesh Mallya, AVP-Research Non-Agri Commodities and Currencies, Angel One.

“As gold ETFs have been in the market for quite a while and even the investors have shown much interest in investing in them, we believe that as silver already has a prominent position amongst the Indian audience, the silver ETFs will also be well-accepted in the Indian market,” said Manish P. Hingar, Founder, Fintoo.

What would be the basic features like?

The Silver ETF is expected to operate similarly to the Gold ETF, with units generated only if the underlying asset is purchased. As a result, the Silver ETF’s underlying asset can only be real silver. This may provide investors seeking to invest in silver with further comfort.

“We’ll need to wait to see the product launches around these, but as Sebi has indicated, they are expected to be like Gold ETFs. Asset Managers could also look to launch Silver funds that invest in Silver ETFs,” says Kaustubh Belapurkar, Director – Manager Research, Morningstar India.

What does this mean for investors?

Investors that had previously invested in commodities were looking for chances to invest in silver, similar to the Gold ETF. For such investors, the introduction of Silver ETF will be extremely beneficial, as they will be able to purchase units of Silver ETF using their stock broking account’s demat account.

“We believe there are adequate volumes in the physical market for silver ETFs. Investors will benefit from the introduction of Silver ETF as it will help diversify their holdings in commodities. Gold ETFs continue to see a rapid expansion in investor base over past few years, and this will continue as investors get more savvy and evolved,” said Vishal Jain, head-ETF, Nippon Life India Asset Management.

Unlike gold, silver is heavily used in industry, which is something investors should bear in mind. Additionally, silver is more volatile over time than gold, warn experts.

“As far as asset allocation goes, you can consider gold as an asset allocation investment, and there is no real need to invest in silver from an asset allocation perspective,” said Harshad Chetanwala, Co-Founder MyWealthGrowth.com.

“Investors looking to diversify exposure into other commodities can look to take the exposure. Investors do need to be judicious in their allocation; while recent years’ returns may look good, silver-like many other commodities has been volatile,” concurred Belapurkar.