Lately, something called “exchange-traded funds” or ETFs has become quite popular among investors. These ETFs are like a handy tool that helps people spread their investments across different things. Among these ETFs, there’s something special called “silver ETFs.” These have caught the eye of investors who want to protect their money from inflation and enjoy the advantages of precious metals like silver without having to store actual silver bars. In this article, we’re going to dig into the world of silver ETFs in India.
The Context
In recent years, exchange-traded funds (ETFs) have gained popularity among investors for their convenience and ability to provide diversified exposure to various assets.
Among these, silver ETFs have piqued the interest of investors looking to hedge against inflation and diversify their portfolios with gold-like benefits without physical ownership.
In this post, we will explore the world of silver ETFs in India, catering to the curiosity of investors interested in this asset. Additionally, we will examine why silver ETFs are emerging as an intriguing investment alternative.
Understanding Silver ETFs
Silver ETFs serve as investment vehicles that enable individuals to track the price movements of silver without owning the physical metal. These funds typically hold silver bullion or invest in silver derivatives, offering investors a convenient and cost-effective way to participate in the silver market.
By utilizing silver ETFs, investors can access and benefit from the price fluctuations of silver without the need for physical possession. These investment funds usually hold silver bullion or engage in silver derivative investments. This approach allows investors to conveniently and economically participate in the silver market.
In recent times, the Indian market has seen the introduction of silver ETFs, providing investors with an opportunity to gain exposure to silver without the complexities of physical ownership. These ETFs closely track the price movements of silver in the open market.
The fund managers responsible for silver ETFs purchase silver and securely store it in vaults. These ETFs are regulated by the Securities and Exchange Board of India (SEBI), ensuring investor protection. To ensure transparency and authenticity, the fund managers are required to obtain regular auditor reports verifying the physical presence of silver in the vaults.
According to the standards set by the London Bullion Market Association (LBMA), fund houses must procure physical silver of 99.99% purity. This measure guarantees the purity of the silver held by the ETFs and minimizes the risk of fraudulent activities.
Benefits of Investing in Silver ETFs
1. Diversification
Silver ETFs offer investors a valuable avenue for diversifying their investment portfolios beyond traditional asset classes like stocks and bonds. Including silver in the portfolio can potentially reduce overall portfolio risk while enhancing potential returns.
2. Cost Efficiency
Investing in silver ETFs eliminates the need for storage, insurance, and transportation costs associated with physical silver. Moreover, silver ETFs generally have lower expense ratios compared to actively managed mutual funds, making them a cost-effective option.
3. Liquidity
Silver ETFs are traded on stock exchanges, providing investors with the flexibility to buy or sell shares at market prices throughout the trading day. This liquidity ensures easy entry or exit from positions without the hassles associated with physical silver.
4. Transparent Pricing
Silver ETFs are priced based on the underlying value of silver, which is determined by market forces. This transparency allows investors to accurately track the performance of their investments.
We have previously covered an extensive article on Silver, which you can explore by clicking here.
The Indian Silver ETF Landscape
Here are a few popular silver ETFs available in India:
1. Nippon India Silver ETF
Managed by Mr. Vikram Dhawan, this ETF was officially launched on February 3, 2022. It is an open-ended scheme listed on the exchange, primarily investing in physical silver and/or silver-related exchange-traded commodity derivatives (ETCD). With an expense ratio of 0.13%, it has delivered a return of approximately 12% since its inception in June 2023.
2. Axis Silver FoF ETF
Managed by Mr. Pratik Tibrewal, this open-ended scheme focuses on silver commodities. It is part of Axis Mutual Fund House and was launched on September 20, 2022, with an expense ratio of approximately 0.15%. Given its recent inception, it is considered too new to receive a rating. As of June 2023, the fund has delivered a return of around -4.02% since its inception.
3. HDFC Silver ETF FoF
Managed by Mr. Arun Agrawal and Mr. Nirman Morakhia, this open-ended scheme also focuses on silver commodities. It is part of HDFC Mutual Fund House and was launched on September 02, 2022. The fund has delivered a return of approximately -4.17% since its inception. The expense ratio of this fund stands at 0.20%.
“FOF” refers to a Fund of Funds, representing a portfolio of mutual funds. FOFs invest in a selection of other mutual funds based on the investor’s risk tolerance and investment objectives. By diversifying across multiple mutual funds, FOFs aim to provide investors with broader exposure to various asset classes and investment strategies.
Investment Considerations
Before proceeding with investments in silver ETFs, it is crucial to consider several important factors:
1. Research and Analysis
Conduct thorough research on the performance, expense ratios, and liquidity of available silver ETFs. Analyze historical performance and underlying assets to understand how the fund aligns with your investment goals.
2. Silver Market Outlook
Stay informed about the silver market and the factors influencing its price. Consult industry experts or financial advisors to gain insights into market dynamics.
3. Risk Assessment
Understand the risks associated with silver ETF investments, including market volatility, liquidity risks, and fluctuations in silver prices. Diversification and a long-term investment horizon can help mitigate some of these risks.
4. Portfolio Allocation
Evaluate your overall investment strategy and determine the appropriate allocation to silver ETFs based on your risk tolerance and investment goals. Consult with a financial advisor if necessary.
5. Tracking Error
Tracking error represents the difference between the returns of a scheme and that of an underlying benchmark. Fund houses must keep their tracking error within a range of 2%. If it exceeds 2%, the fund houses are required to mention the tracking error percentage on their portal.
Conclusion
While historically not a preferred asset class for many investors due to volatility and average returns, silver investments are worth considering for their potential industrial applications across various sectors. However, it is important to note that silver ETFs, being relatively recent additions to the mutual fund landscape, have faced challenges since their inception, especially during adverse global economic conditions.
Unlike gold funds, silver ETFs generally exhibit a correlation with equity markets, indicating that factors influencing the stock market can also impact silver prices.
Some experts argue that silver may not be an ideal hedge in a portfolio, as silver prices are highly influenced by market conditions and do not consistently move in the opposite direction to other assets like gold.
Considering these factors, conducting extensive research, carefully evaluating risk factors, and aligning your investment strategy with your goals, circumstances, and risk tolerance is crucial. This article is not intended as investment advice, but rather as a guide to help you make informed decisions regarding investments in silver ETFs.
We hope you found this article informative and enjoyable to read.
Invest wisely!
