The Buyt Desk
Gold is a favourite investment. Indians love buying gold not just for investment but for gifting and to adorn themselves on auspicious occasions like marriage and festivals. Now another precious metal is making its foray into the world of investment and it is silver. In November 2021, the Securities and Exchange Board of India (SEBI) permitted silver ETFs and came out with operating norms. If you have been thinking about silver as an investment then silver exchange-traded funds or funds of funds that invest in underlying ETFs are a newly available option. But why should you invest in them? Commodity-based ETFs such as gold and now silver are a good bet against rising inflation as their prices are linked to the general price level of the economy. So they help to create a hedge against inflation. Secondly, the metal ETFs provide a good diversification if your investment portfolio has exposure to equity assets like stocks and mutual funds.
Why invest in Silver?
Silver is not only a precious metal but also an industrial metal. More than 50% of the demand for silver is from industrial sectors such as electronics, medicine, automobile, computer, cell phone and many more. Silver and gold behave differently in the economic environment. Gold always performs well when there are growing concerns and uncertainty thus it is called a safe haven investment. On the contrary, silver thrives when there is economic expansion and industrial demand grows.
How would a silver ETF work?
Silver ETFs will work like gold ETFs where they will be backed by physical silver of 99.9% purity. As per SEBI rules, silver ETFs will have to invest at least 95 per cent of their net assets in silver and silver-related instruments. The ETF will be benchmarked against the domestic price of silver as derived from the London Bullion Market Association (LBMA) prices. Silver has performed very well at times of crisis. Whether it was the subprime crisis of 2008-09 or 2020 when COVID-19 hit us this metal gave a good return. Between Jan 2008 to Feb 2009 (subprime crisis)silver rallied 13% while NIfty %0 fell by 54% and between February 2020 to Mach 2021( COVID crisis) silver slipped by 23% but NIFTY 50 was down much more by 37%.
How Can You Start Your Investment?
You can invest in an ETF through your Demat account and sell and buy an ETF just like a stick. But if you don’t have a Demat account then you have the option of investing in Silver FOFs.There are 2 silver ETFs and 3 silver ETF funds of funds present in the market. Aditya Birla Sun Life MF and Nippon India MF launched one silver ETF and FoF each while ICICI Prudential MF launched an FoF. The minimum amount that one could invest could be 100 Rs for one unit but some companies may have a cap on lower limits.
