Precious metals: you can now invest in silver ETFs

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While the introduction of the silver ETF will expand the options available for investing in commodities through exchanges, investors should note that silver prices can be volatile.

In order to enable individuals to invest in silver exchange-traded funds (ETFs), the Securities and Exchange Board of India (Sebi) published the operating standards after changing the regulations of mutual funds to have a mechanism for silver ETFs. Asset management companies (AMCs) can now launch silver ETFs to offer investors the opportunity to invest in a new commodity.

In India, investors invest in silver through silver bullion, silver coins and silver jewelry and some through silver futures contracts. As with gold ETFs, with silver ETFs, fund houses will need to invest at least 95% of net assets in silver and silver-related instruments. Exchange Traded Commodity Derivatives (ETCDs) with silver as an underlying will be considered as money linked instruments.

The investment objective will be to generate returns in line with the performance of physical silver at national prices, subject to tracking error. The regulator of the markets stressed that physical silver must consist of standard 30 kg bars with a fineness of 999 parts per thousand (or a purity of 99.9%) confirming the good delivery standards of the London Bullion Market Association (LBMA). The NAV of the Silver ETFs will be published daily on the AMC website and the indicative NAVs of the Silver ETFs will be disclosed on the stock exchanges, where the units of these ETFs are listed.

Silver ETFs will be benchmarked against the price of silver based on the daily spot price of LBMA Silver. With regard to liquidity, the Silver ETF units will be listed on a stock exchange and AMCs will appoint authorized market participants / makers to ensure the liquidity of the Silver ETF units in the secondary market.

The regulator pointed out that the tracking error – the annualized standard deviation of the difference in daily returns between physical silver and the ETF’s net asset value on silver based on one-year rolling data – should not exceed 2% and should be disclosed monthly. on the CMA website. The physical control of the money underlying the silver ETF units will be carried out by the FCP’s auditor and will report to the trustees every six months.

What this means for investors
While the introduction of the silver ETF will expand the options available for investing in commodities through exchanges, investors should note that silver prices can be volatile. However, by investing in silver ETFs, investors will not have to worry about their purity or theft as the underlying asset will be managed by vault managers.

Chintan Haria, head of products and strategy, ICICI Prudential AMC, says people physically invest in gold and silver because they are seen as a store of value. “With increasing financialization, the Silver ETF will be one more tool alongside the Gold ETF through which investors will be able to participate meaningfully in the commodities markets. Since money is large in nature and therefore difficult to store, we believe that the ETF form will be one of the preferred ways for investors to gain exposure to money as a financial investment ”, a- he declared.

Priti Rathi Gupta, founder of LXME, says that with the introduction of standards for silver ETFs, investors will be able to invest in silver more liquid than traditional methods. This can help diversify the portfolio as silver has been a precious metal, after gold, to catch the eyes of investors. “There is now consistency in these product specifications. This makes investing in money easier, more accessible and transparent for investors, who will benefit from professional fund management, ”she said.

Thus, investors who wish to diversify their investment portfolio can invest in silver ETFs as well as gold ETFs and benefit from price efficiency.

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