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Know why experts say to wait and watch before investing in Silver ETFs

Know why experts say to wait and watch before investing in Silver ETFs

Just like gold ETFs, Silver ETFs are units representing physical silver in paper or dematerialised form.

In silver ETFs, the liquidity might not be high in the initial stage In silver ETFs, the liquidity might not be high in the initial stage

Investors will now have one more commodity option for investing their money, as many fund houses are gearing up to launch their Silver Exchange Traded Funds (ETFs).

Aditya Birla Sun Life Mutual Fund, Nippon India and Mirae Asset recently filed their Scheme Information Document (SID) with the Securities and Exchange Board of India (SEBI) for launching Silver ETFs.

Just like gold ETFs, Silver ETFs are units representing physical silver in paper or dematerialised form. According to SEBI norms, such schemes will have to invest at least 95 per cent in silver and silver-related instruments. The norms came into effect on December 9, 2021.

Experts say the biggest advantage of ETFs can be purity and elimination of storage-related issues. Moreover, one needs to know that silver prices are driven by many other factors and are used for industrial purposes.

One needs to track the demand and supply of silver for industrial use in order to determine future returns.

Should one invest in Gold ETFs?

"Not necessarily, one needs to assess, whether such a fund fits into his or her assets allocation. Besides Silver ETF, in the recent past AMCs have also launched Crypto theme funds and things like that, but not all of these funds are fit for all to invest in," says Rishad Manekia, founder and MD, Kairos Capital.

Harshad Chetanwala, Co-founder MyWeathGrowth, agrees. "Silver is one of the precious metals, but investors usually do not have fixed plans to diversify their portfolio in silver. Those investors who have been investing in commodities and were looking for opportunities to invest in silver may consider these ETFs. Otherwise, from an asset allocation perspective, there is no real need and one should not be in hurry to invest in Silver ETF," he adds.

Is investing in gold ETFs a better option?

Gold as an asset class is much different from silver which has high industrial usage and this is one factor investors should keep in mind.

Also, silver is more volatile than gold over a period. "As far as asset allocation goes, one can consider gold as a more stable and acceptable investment avenue across the world compared to silver," says Chetanwala.

Moreover, trading at a fair price and lack of liquidity in the initial days was an issue with some Gold ETFs, but over a period this was resolved with more people investing in ETFs.

In silver ETFs, the liquidity might not be high in the initial stage. Gold has a proven track record and a global commodity, says Kairos Capital's Manekia.

"Traditionally investment in Gold is being used to hedge against inflation risk and there are dedicated funds to track the broader commodity space. However, depending on the risk appetite, ideally one should not invest more than 5-10 per cent of the total portfolio in gold. Given the small percentage of the total portfolio that can be invested in gold, rather than investing a portion out of it in silver or replacing it with silver, it is better to stick with gold as it is a tried and tested value," he notes.

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Published on: Dec 11, 2021, 1:20 PM IST
Posted by: Mohammad Haaris Beg, Dec 11, 2021, 1:14 PM IST