When it comes to investing in precious metals, global investors opt for gold and Silver Through the Exchange Traded Fund (ETF) route. While gold ETFs have been available to Indian investors since March 2007, silver funds were first launched here in January.
Till now, investors could only invest in silver in physical form. with Silver ETFsInvestors need not worry about the purity or quality of the underlying asset and it is also free from storage constraints. Also, experts say that the liquidity and price efficiencies are likely to be better than the traditional options.
Despite its weak performance and limited options, today silver ETFs have assets under management (AUM) of approx. 850 crores.
So far, Aditya Birla Sun Life Mutual Fund, ICICI Prudential Mutual Fund and Nippon India Mutual Fund have launched silver ETFs. In addition, each of these fund houses has a Silver Fund of Funds (FOF), which in turn invests in their respective ETFs.
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Experts say silver is considered a store of value and has limited or little correlation with other asset classes. Recently, inflows into silver ETFs, particularly in the US, have improved due to their role as a hedge in times of uncertainty.
According to a recent report by Motilal Oswal Financial Services, after logging outflows in 2021, global silver ETFs have seen a net inflow of around 1,175 tonnes so far.
On the other hand, the domestic silver ETF category, which was launched in January 2022, has delivered an average return of -4.56% over a three-month period.
Silver is a more strategic allocation, in contrast to gold, which is a strategic allocation for portfolio diversification. In addition, 65-70% of silver is used in industrial applications.
“As long as geopolitical uncertainty persists and the US Fed remains in a hurry, commodities including silver will remain volatile.
Chintan Hariya, Head – Product Development & Strategy, ICICI Prudential AMC said, “With inflation continuing, silver may perform well due to its role as a hedge against inflation.”
Silver prices started off well for the year, gaining around 20%, though then saw a decline at almost the same pace, erasing gains. The Fed’s aggressive stance on interest rate and balance sheet trimming weighed on safe-haven assets, according to a Motilal Oswal Financial Services report.
Hariya believes that factors such as increasing demand from new-age industries, such as those dealing in 5G technology and solar power, increase in modern eco-friendly manufacturing, electronic mobility and equipment are some of the factors driving the increasing demand. Contributing to. silver metal. However, keep in mind that silver may go through a period of underperformance.
For example, in May 2012 the futures price of silver was around $27 an ounce, while their current price is $22 an ounce.
“If an economic slowdown starts due to prolonged high interest rates and tight liquidity, the precious metal’s position in silver could help it outperform,” Hariya said.
Precious metals act as safe havens in times of turmoil, although this is more pronounced for gold. For example, silver has performed well in each of the previous examples (global financial crisis, temper tantrum and covid-19).
“Furthermore, increased applications in new-age businesses should help silver outperform other asset classes during recessions,” the expert said.
Financial advisors suggest an allocation of 10-15% in precious metals.
However, the question an investor needs to ask is whether such a fund fits into his asset allocation and can help achieve the financial objective or goal.