In an evolving investment landscape, precious metals like silver have long been considered a reliable hedge against economic volatility and inflation. While traditional investors may prefer physical silver, financial markets have introduced more accessible and efficient alternatives, such as Silver Exchange-Traded Funds (ETFs) and Silver Fund of Funds (FoFs). These instruments provide investors with exposure to silver without the complexities of storage and security.
With regulatory backing from the Securities and Exchange Board of India (SEBI), silver mutual funds have emerged as a promising avenue within the Indian mutual fund industry. This article explores the mechanisms of investing in silver through mutual funds, provides an overview of Silver ETFs as per SEBI’s guidelines, analyses the current growth of this segment, and highlights key factors investors should consider before making an allocation. Additionally, we will examine how investment platforms like Kuvera simplify the process of investing in silver.
Understanding Silver ETFs: SEBI’s Definition and Guidelines
A Silver ETF is a type of mutual fund scheme that invests primarily in physical silver or silver-related instruments to mirror the price movements of silver. According to SEBI’s 2021 guidelines, Silver ETFs must allocate at least 95% of their net assets to physical silver and silver-related instruments that meet the London Bullion Market Association (LBMA) Good Delivery Standards. The remaining 5% of the assets can be held in cash or cash equivalents for liquidity management.
Additionally, SEBI mandates that Silver ETFs must:
- Disclose their Net Asset Value (NAV) daily.
- Maintain a tracking error (the deviation between the ETF’s returns and actual silver prices) within 2%.
- Ensure proper transparency in fund holdings.
These measures ensure that Silver ETFs accurately reflect silver’s performance and safeguard investor interests.
How to Invest in Silver Through Mutual Funds
Investors looking to gain exposure to silver through mutual funds can do so using two primary instruments:
1. Silver ETFs
These funds directly invest in physical silver, and their units are traded on stock exchanges like equity shares. Investors can buy and sell Silver ETF units during market hours at real-time prices, making them a liquid and cost-effective alternative to physical silver.
2. Fund of Funds (FoFs) Investing in Silver ETFs
Silver FoFs invest in units of Silver ETFs and are ideal for investors who do not have a demat account. Unlike Silver ETFs, which require stock exchange transactions, FoFs allow investments through standard mutual fund channels, making them more accessible.
3. Growth of Silver ETFs in the Mutual Fund Industry
The introduction of Silver ETFs in India represents a significant shift in the mutual fund industry. Several asset management companies (AMCs) have launched their own Silver ETF schemes since SEBI’s approval. Notable examples include:
- Mirae Asset NYSE FANG ETF FoF Growth Direct Plan
- ICICI Prudential BSE 500 ETF FoF Growth Direct Plan
- Invesco India Gold ETF FoF Growth Direct Plan
According to recent AMFI (Association of Mutual Funds in India) reports, Silver ETFs have witnessed steady inflows, reflecting rising investor interest. While the overall Asset Under Management (AUM) is still in its nascent stage compared to Gold ETFs, silver’s increasing industrial demand and inflation-hedging properties are expected to drive future growth. As per The Hindu Business Line, Silver ETF AUM hits Rs. 13500cr. In three years and there are 12 Silver ETFs with more than 6 Lakh investor folios.
Market Experts’ Opinions on Silver ETFs
Leading market analysts and wealth managers have weighed in on the potential of Silver ETFs:
- Vaibhav Jalan stated:“ The increasing transaction volumes of silver ETFs are a clear indication of growing investor interest. These ETFs offer an alternative to physical silver ownership, addressing concerns on storage, security and insurance while providing access to silver’s price movements.”
- Vishal Jain stated: “Silver has the potential to play a role in both investment portfolios and modern industries. Silver ETFs are a valuable tool to diversify portfolio and capitalise on the metal’s unique characteristics.”
Key Considerations for Investing in Silver Mutual Funds
Before investing in silver mutual funds, investors must carefully evaluate the following factors:
1. Volatility
Silver prices are inherently volatile due to their dual role in jewellery and industrial applications. Investors should be prepared for price fluctuations.
2. Expense Ratio
While ETFs typically have lower expense ratios, costs associated with storage, insurance, and fund management can vary. Higher expenses may reduce overall returns over time.
3. Liquidity
Liquidity is essential, especially in emerging segments like Silver ETFs. Investors should assess the trading volume of a specific Silver ETF before investing to avoid liquidity constraints.
4. Tax Implications
Gains from Silver ETFs are taxable in the manner stated by the respective authority.
5. Tracking Error
Investors should opt for ETFs with minimal tracking error, ensuring fund performance remains closely aligned with silver’s actual market price.
How Kuvera Assists in Investing in Silver Mutual Funds
Kuvera, a leading digital investment platform, simplifies the process of investing in Silver ETFs and FoFs. It provides:
- Commission-free investments: Unlike traditional brokerage firms, Kuvera allows cost-effective investing in silver mutual funds.
- Easy tracking and portfolio analysis: Investors can monitor their silver holdings alongside other asset classes.
- Accessibility: Allows investment in Silver FoFs without a demat account.
Investors can make well-informed decisions when adding silver to their portfolios by leveraging Kuvera’s user-friendly interface and advisory tools.
Wrapping Up
Silver ETFs present an exciting opportunity for diversification in an investment portfolio, offering benefits of both a precious metal and an industrial commodity. They serve as a hedge against inflation and economic uncertainty while eliminating the challenges of physical silver storage. However, given silver’s price volatility and tracking errors, investors must approach these funds with a balanced and informed strategy.
As the Indian mutual fund industry continues to expand its product offerings, Silver ETFs are poised for steady growth. Consulting with financial advisors and leveraging platforms like Kuvera can help investors navigate this evolving investment landscape effectively.
As Warren Buffett aptly said, “Risk comes from not knowing what you’re doing.” A well-researched approach to silver investing can maximise potential returns while mitigating risks, ensuring long-term financial success.
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