Market regulator Sebi has allowed asset management companies to introduce silver exchange-traded funds (ETFs) in the Indian market. Currently, Indian mutual funds are allowed to launch ETFs tracking on gold. While there are no silver ETFs available, it will work on the same principle as Gold ETF which are already being traded in stock exchanges. The only difference being the underlying asset which is Silver. Apart from this, there are no differences between Gold ETF and Silver ETF.
Silver not only acts as a precious metal, but also has many industrial uses. Its demand spans industry, investment, photography and jewelry. Savvy investors tap the opportunity in silver through physical holding. Silver ETFs will enable small investors, too, to participate in the rally of the commodity.
Investors looking to gain exposure to silver prices can now do away with the drawbacks of buying physical silver; such as holding costs and theft risk.
Notwithstanding the portfolio diversification benefits it brings, however, one should be judicious with their assets allocation and evaluate the metal based on its investment merit as silver prices like any other commodity are volatile.
As a result, silver will rise more than gold on rallies, and fall more than gold during corrections.
Looking at the cyclicality and high volatility of silver prices (any ETF will track the price movement of Silver to deliver returns), our conclusion is that Silver ETFs whenever launched by any AMCs can be considered only for trading purpose. It is not suitable for investment since the price movement is basically due to supply-demand mismatch. At the most, like in the case of Gold, we advise investment exposure of only 5% in gold and silver combined. However in our considered opinion, silver is only suitable for trading purpose and should not be considered for investment either to generate any sort of income as per above mentioned objectives or to hedge the portfolio risk.
We urge you to have conversations with financial advisors who have seen and navigated these cyclical rises and falls. They are in the best objective position to help you understand and mitigate the risks of letting emotion get the better of you.
In charts | Silver ETFs to be available soon: But are they worth investing in? MONEY CONTROL | Silver ETFs get the green light, but are they worth investing in? MINT | Can silver ETFs be a good bet for mutual fund investors? THE ECONOMIC TIMES | Sebi allows launch of silver ETFs by mutual funds in India, MINT