Next Diwali, Silver wali? Silver ETF can become as popular as Gold ETF, says Wint Wealth’s Ajinkya Kulkarni

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Updated: November 01, 2021 2:56 PM

Though Gold based investments have always been an investor favourite, Silver ETFs will help diversify and strengthen their asset allocation

silver etf diwaliRepresentative image

Next Diwali, retail investors in India may have an option to further diversify their portfolio by including Silver ETFs digitally. The Securities and Exchange Board of India (SEBI) recently allowed mutual fund companies to introduce Silver ETFs. Wint Wealth co-founder Ajinkya Kulkarni feels that like Gold ETFs and Sovereign Gold Bonds (SGBs), silver ETFs can become a meaningful investment.

In an e-mail interaction with FE Online, Kulkarni said that though Gold-based investments have always been an investor favourite, Silver ETFs will help diversify and strengthen their asset allocation. Excerpts:

How can silver ETFs be a meaningful asset in one’s portfolio?

The recently approved silver-backed exchange-traded funds (ETFs) by SEBI will enable Indians to invest in silver digitally. For years, Indian markets have had only one commodity ETF – Gold. Globally, investors have access to various asset classes, which helps them diversify, reduce risk and improve their returns. Some of these include gold, silver, crude oil, etc.

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ETFs for crude oil and silver have been a demand of investors for a long time. Silver is not just a precious metal but also has industrial use e.g. It is used in making electronic goods, semiconductors, electric vehicles, etc. New asset classes help investors try different combinations and invest in what works best for them. Like Gold ETFs and SGBs, silver ETFs can become a meaningful investment in our portfolios.

How an investor may benefit from investing in Silver ETF?

With more options such as this, a person can diversify amongst different asset classes with varied correlations with other asset classes in one’s portfolio. It will deepen the securities market for investors as it will enable more options available for investing in commodities through stock exchanges.

How will silver ETFs work?

If someone wanted to invest in silver, it wasn’t easy. It was a hassle to sell and store physical silver since it is bulkier than gold. You can trade in commodity futures that expose you to silver, but they aren’t a long-term investment. A mutual fund launching a silver ETF can make it much easier to invest in silver. This is a great move by SEBI.

Is it wise to invest in a commodity through an ETF? What are some pros and cons?

New-age investors prefer the easier way of investing in ETFs over buying physical assets and the additional stress of its storage charges and security.

Pros– ETFs have a lower expense ratio compared to actively managed funds

Cons– It can be overpriced or underpriced based on the demand in the market

When Gold ETFs are already available for investors, why would someone like to invest in silver ETFs (considering there is so much craze for gold, especially in the ongoing festival season)

There has been a lot of demand for Silver ETFs from Indian and Institutional investors for a while now but the investment avenues have been limited now. Though Gold based investments have always been an investor favourite, Silver ETFs will help diversify and strengthen their asset allocation. With an increased level of education around investment, retail investors are on the lookout for alternative investment options.

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At present, Indian mutual funds are allowed to launch ETFs tracking only one commodity – gold.

Gold ETFs together manage assets worth Rs 16,349 crore as on August 31, 2021, as per data released by the Association of Mutual Funds in India. In time, silver ETFs have the potential to become as popular as gold ETFs even.

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