ICICI AMC and Nippon India MF planning silver exchange-traded funds

At present, while there are several options for investors looking to put their money in gold, those investing in the white metal can only buy physical silver

There is a piece of good news for those looking to invest in commodities: After several gold-related securitised products, they might soon get silver exchange-traded funds (ATFs), too. According to sources in the know, at least two large fund houses — Nippon India Mutual Fund and ICICI AMC — are working on launching silver ETFs.

At present, while you can invest in gold in a number of ways — digital gold, physical buying, ETFs and sovereign gold bonds — the only option for you to invest in silver is physical purchase of the white metal. Following the success of gold ETFs, there had been several attempts in the past to launch similar products for silver and crude oil. But those could never pick up for two reasons — first, limited legal clarity; and second, separate regulators for the commodity market and the exchanges on which these would be traded.

The environment now is more conducive as both commodities and ETFs are regulated by the Securities and Exchange Board of India (Sebi); and, since all exchanges are universal, any of them can permit fund houses to bring ETFs for silver or any other commodity.

According to sources, a few large fund houses are already working on proposals to launch ETFs for silver, as they have now been formally allowed to trade even in the commodity derivatives segment. Source also said mutual funds were waiting for a custodian to be ready for trading on commodity exchanges.

A Nippon India Mutual Fund spokesperson said: "Commodities are an important asset class for us. Nippon India ETF Gold BeES was the first Gold ETF in India. As and when the regulations permit, we will be interested in expanding our product suite for commodity-linked ETFs.”

In 2010-11, Sebi had allowed the launch of a silver ETF and the National Stock Exchange (NSE) had issued a circular. However, NSE later withdrew its permission following objections from the Forward Markets Commission (the then regulator for commodities derivatives) and Sebi. The silver ETF could, therefore, not be launched. Gold ETF, on the other hand, was first launched in 2007 by Benchmark Assets Management, now under Nippon.

ICICI Assets Management Company, another mutual fund company with big plans for the commodities market, also has silver ETF high on its priority list. The company has, according to sources, already enabled hybrid schemes for investment in commodity derivatives, in line with Sebi regulations. The company has been working on a silver ETF for some time.

All fund houses, including Nippon and ICICI AMC, are awaiting custodians before they can start offering their commodity services. As of now, only one custodian is ready and MFs want more. Exchanges are said to be pushing a few banks to launch custodian services for commodities; this will also facilitate MFs’ participation in commodity derivatives apart from ETFs.

Chintan Haria, product head, ICICI AMC, said: “It is encouraging that the regulator has allowed mutual funds to participate in the commodities segment. We are exploring the possibility of introducing products in this segment, subject to regulatory approvals.”

To allow gold ETFs, the finance ministry had specifically notified gold as a security. But a similar decision for silver never came, so silver ETFs were not permitted.

According to data from Metal Focus, all exchange-traded products globally were holding 19,840 tonnes of gold in 2018. Physical investment in the commodity during the year stood at 5,155 tonnes, of which 1,680 tonnes worth of investments were in India alone. Metal Focus said Indian investors had bought a hefty 10,646 tonnes in the five years through 2018.