Silver: Just a portfolio diversifier

The consistent rise in silver prices — the highest among all other investment avenues — in the last few months, has invoked investors’ interest in the asset. The average daily volumes in silver on the Multi-Commodity Exchange (MCX) have risen sharply from Rs 12,245.14 crore to Rs 16,832.09 crore between January and March.

Silver prices, which closed at Rs 59,015 a kg last Wednesday in the domestic market, have returned 28.52 per cent in three months, 67.78 per cent in six months and a whopping 176.55 per cent in two years. In comparison, the Sensex has returned negative over a six-month period and 86 per cent over two years.

And, reports suggest that going forward the commodity is likely to do quite well. Some predict that its price could even touch Rs 1 lakh a kg in the next couple of years. The reason being that silver has dual use both as an industrial commodity and precious metal. Also, there are predictions that there will be a high demand from the Japanese electronic industry in the near future.

For retail investors, there are two ways they can invest in silver. For lump sum investors, there are the two commodity exchange platforms of MCX and NCDEX. One can buy in the spot or futures markets. In the futures market, one will have to initially pay only the margin fee.

The other, which is more retail-investor friendly, is the e-silver route. The latter is a part of the National Spot Exchange’s (NSEL’s) e-series that allows you to buy the white metal in units of 100 g each and hold it in electronic (read unit) format in the demat account (you need to open an account with the broker like in stock trading). In addition, one can invest through the systematic investment plan (SIP) route — that is, buy small quantities on a monthly basis.

Also, to sell you can use the same NSEL platform. Interestingly, one can get physical delivery of the metal in various denominations of 500 g, 1 kg, or 5 kg at different centres.

Those willing to participate in the silver rush can look at this option, but only as a portfolio diversifier. Experts say silver is a high beta commodity. Invest some part of the overall portfolio say, 10-15 per cent, through the SIP route. Remember, putting all the eggs in the same basket is never a great idea.