Next Diwali, retail investors in India may have the option to diversify their portfolio by digitally including silver ETFs. The Securities and Exchange Board of India (SEBI) recently allowed mutual fund companies to offer silver ETFs. WintWealth co-founder Ajinkya Kulkarni feels that like gold ETFs and sovereign gold bonds (SGBs), silver ETFs can become a worthwhile investment.
In an email interaction with FE Online, Kulkarni said that while gold-based investments have always been a favorite of investors, silver ETFs will help diversify and enhance asset allocation. Excerpts:
How can silver ETFs be a meaningful asset in one’s portfolio?
Recently approved by SEBI, silver-backed exchange-traded funds (ETFs) will enable Indians to invest in silver digitally. For years, the Indian markets had only one commodity ETF – gold. Globally, investors have access to different 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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Crude oil and silver ETFs have been in demand for a long time. Silver is not only a precious metal but also has industrial uses, for example, it is used in the manufacture of electronic goods, semiconductors, electric cars, etc. New asset classes help investors experiment with different combinations and invest in what suits them best. Like Gold ETFs and SGBs, Silver ETFs can become a worthwhile investment in our portfolios.
How can an investor benefit from investing in a Silver ETF?
With more options like this, a person can diversify between different asset classes with diverse correlations with other asset classes in one’s portfolio. It will deepen the stock market for investors because 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 difficult to sell and store physical silver because it was more massive than gold. You can trade in commodity futures that expose you to silver, but it is not a long-term investment. A mutual fund launching a silver ETF can facilitate investing in silver. This is a great move from SEBI.
Is it wise to invest in a commodity through an ETF? What are some of the pros and cons?
New age investors prefer the easier way to invest in ETFs over buying physical assets and the added stress of storage and security fees.
PositivesETFs have a lower expense ratio compared to actively managed funds
cons– Can be overpriced or undervalued depending on market demand
When gold ETFs are already available to investors, why would someone want to invest in silver ETFs (considering that there is a lot of obsession with gold, especially in this festival season)
There has been a lot of demand for silver ETFs from Indian investors and institutions for a while now but the investment avenues have been limited now. Although gold-based investments have always been an investor’s favourite, silver ETFs will help diversify and enhance asset allocation. As the level of education about investing increases, retail investors are looking for alternative investment options.
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At present, Indian mutual funds are allowed to launch ETFs to track only one commodity – gold.
Gold ETFs together manage assets of Rs 16,349 crore as on August 31, 2021, according to data from the Mutual Funds Association of India. Over time, silver ETFs will likely become as popular as gold ETFs.