Silver ETF to boost domestic MFs, can match gold ETF on popularity: experts

Globally, there are at least four silver ETFs with AUM of more than $1 billion. iShares Silver Trust, the world's biggest silver ETF, has AUM of over $12 billion.

Market regulator Securities and Exchange Board of India (Sebi)'s move to allow the launch of silver exchange-traded funds (ETFs) is seen as a big opportunity for domestic mutual funds (MFs) in their drive to mobilise assets.

Industry participants believe silver ETFs have the potential to become as popular as gold ETFs given their appeal among local investors.

“The introduction of silver ETF will expand the options available for investing in commodities through stock exchanges. This will deepen the securities market for investors. Indians have a deep-rooted love for buying gold and silver. The launch of ETFs will give them a seamless way of buying silver,” said Swapnil Bhaskar, business head, Niyo Money.

In August, gold ETFs offered by domestic MFs had average asset under management (AUM) of Rs 16,350 crore. Globally, there are at least four silver ETFs with AUM of more than $1 billion. iShares Silver Trust, the world’s biggest silver ETF, has an AUM of over $12 billion.

Several investors prefer ETFs over buying physical silver as they don’t have to worry about purity and storage, which is managed by the professional vault managers.

Despite the affinity of Indians for gold and silver, returns generated by the silver during the past 10 year have been poor and prices tend to be volatile.

Data by India Bullion and Jewellers Association (IBJA) and Zaveri Bazar shows that in the last 10 years silver has given compound annual growth rate (CAGR) returns of just 1.3 per cent. The returns improve over a shorter term horizon to 5.5 per cent and 17.2 per cent in the five year and three-year period respectively. The year to date returns of silver is nearly 28 per cent.

Kaustubh Belapurkar, Director - manager research, Morningstar India said, “Introduction of silver ETFs brings in another investable commodity for investors. Silver ETFs are popular globally along with gold and other precious metal ETFs. Investors should be judicious with their investment and allocation as silver prices like any other commodity can be volatile.”

Sebi has said silver ETFs will be launched with certain safeguards in line with the existing regulatory mechanism for Gold ETFs.

“This means the regulator is expected to continue with the same practice of making fund houses own physical silver bars for silver ETF. By using this physically backed strategy, this fund can eliminate the issues of contango and backwardation and give investors more realistic pricing of the metal it holds,” said Priti Rathi Gupta, founder, LXME.