After Gold, you can invest in Silver ETFs in India soon. Will it be a good option?

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October 08, 2021 2:00 PM

Till now, only one commodity ETF (Gold) has been available in the Indian markets. The introduction of Silver ETFs will provide a new asset class to investors, which they can use to further diversify their portfolios.

silver etf

Markets regulator Securities and Exchange Board of India (SEBI) recently allowed Mutual Fund houses to introduce Silver ETFs with certain safeguards. These safeguards would be in line with the existing regulatory mechanism for Gold ETFs.

Even though Silver is not as popular as Gold and commands lower prices, it is still a precious metal with industrial uses. However, investing in silver has not been easy. Experts now say that with the introduction of Silver ETFs, investing in the white metal will become easy.

Till now, only one commodity ETF (Gold) has been available in the Indian markets. The introduction of Silver ETFs will provide a new asset class to investors, which they can use to further diversify their portfolios.

Utkarsh Sinha, Managing Director of Bexley Advisors told FE Online that the introduction of Gold ETFs provided a lot more liquidity to the gold market, allowing for easier price discovery and easing transactions. This, in turn, allowed buyers to trade in and out of gold a lot more seamlessly. For example, with an equity rally various times through the year, we saw an outflow in gold ETF, and vice versa.

“Silver ETFs will introduce similar liquidity and ease transaction burdens for silver, allowing for the asset class to be included in a larger number of portfolios,” he said.

According to Sinha, Silver and Gold are highly correlated. “In fact, the Gold-Silver Ratio is one of the oldest financial ratios tracked by financial markets. Therefore, the introduction of Silver ETFs is more to do with catering to individual preferences than de-risking of portfolios. It will be interesting to see if the investor uptake in Silver ETFs is similar to Gold,” he added.

The price of silver is determined by international prices. If we compare to the 2010-11 prices, average cost of a kg of silver in the domestic market has increased by around 64%. The price of a kg of silver today is around Rs 61,200. In 2010-11, the average cost of a kg of silver was a little over Rs 37,289, according to RBI website.

Will it be safe to invest in Silver ETF?

Sinha said Silver ETFs will be safe, just like Gold ETFs are.

“Presumably, qualified funds will be allowed to introduce the product while being required to hold the equivalent in physical reserves. That might make it slightly less appealing to funds, as the amount you would need to hold in reserve is physically a lot larger than with gold. Similarly, the challenge of price is solved in gold ETFs, as individuals can buy as little or as much as they want, and transaction size is not a barrier to entry like it was with physical gold. That challenge never existed with silver, which is relatively much cheaper. So it will be interesting to see what the uptake for Silver ETFs ends up being,” he added.

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