Fund houses line up Silver ETF launches after Sebi's operational guidelines

Market players believe just like Gold ETFs, silver passive funds can become popular in India. The main aim of the schemes is to generate returns in line with performance of physical silver

Aditya Birla Sun Life Mutual Fund (MF), Nippon Indian MF and Mirae Asset have filed offer documents with the Securities and Exchange Board of India (Sebi) to launch silver exchange traded funds (ETFs).

Late last month, the market regulator issued the operational framework to launch this product.

Market players believe that just like Gold ETFs, silver passive funds have also potential to become popular in India. The main objective of the schemes is to generate returns that are in line with the performance of physical silver in domestic markets.

Sebi had laid down several norms for the asset management companies to launch silver ETFs in India. Sebi had stated that Silver ETFs shall be benchmarked against the price of silver (based on LBMA Silver daily spot fixing price).

In order to get sufficient liquidity in the Silver ETFs, the regulator had stated that units of Silver ETFs shall be listed on the stock exchanges.

“The AMC shall appoint Authorized Participants (APs)/ Market Makers (MMs) to provide liquidity for the units of Silver ETFs in the secondary market on an ongoing basis,” said the Sebi circular.

Along with the disclosure of tracking error, Silver ETF schemes shall also disclose the tracking difference (the difference of returns between physical silver and the Silver ETF), on the website of the AMC on monthly basis for tenures one year, three-year, five year and ten year and since the date of allotment of units.

Sebi has also said that for commodity-based funds a dedicated fund manager with relevant skill and experience in commodities market including commodity derivatives market shall be appointed to manage the fund.

“Sebi has proposed the appointment of a dedicated fund manager for commodity-based funds like Gold ETFs and Silver ETFs. We believe that since these products are passively managed there isn’t a need for a dedicated fund manager or to put it aptly the list of funds should not be restrictive to commodity funds only for that fund manager. However, we do buy the argument that such fund managers should have adequate knowledge and understanding of the commodity markets,” said Chirag Mehta, Sr. Fund Manager-Alternative Investments, Quantum Mutual Fund.

Despite the enthusiasm of Indians to buy commodities like gold and silver, returns generated by silver in the last 10 year have been poor. In the last one year the returns generated by silver is negative 7.3 per cent, however for five year it has managed to give returns of 33.3 per cent.