Silver exchange-traded funds (ETFs) are gradually gaining popularity as an asset class among investors. According to data from the NSE, as of March 31, the total assets under management (AUM) for silver ETFs stood at Rs 1,792 crore. Although this forms a miniscule portion of the overall Rs 5.07 trillion AUM of ETFs in India across categories, experts say it provides an easier opportunity to hold the metal instead of in physical form.
There were seven silver ETFs as of March 31, with the overall number across asset classes being 172.
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“Silver ETFs over the past one year of operations have not only provided decent returns but also offer a hedge against inflation. Usually, one’s ideal asset allocation consists of 5-10% in gold or silver, and silver ETFs have given 18-20% returns, which beats fixed income by quite a margin,” said Manish Mehta, head of sales and marketing, Kotak Mutual Fund.
Securities and Exchange Board of India gave fund houses the green light to launch silver ETFs in September 2021, keeping in mind the rising demand for silver. The regulator mandated that silver ETFs must invest at least 95% of their assets in only silver and silver-related instruments.
Kavitha Krishnan, senior manager-research analyst, Morningstar Investment Adviser India, said the substantial demand for silver is driven by industrials. “Industrials and companies like auto/EV manufacturers do drive the demand for silver. This is a commodity that is tracked closely and usually shows an inverse trend vis-à-vis silver.”
According to Value Research, the UTI Silver ETF was launched in April this year. Of the ETFs in operation for more than a year, returns have been in the range of 20-24%, as of May 11. The two largest silver ETFs are ICICI Prudential Silver ETF and Nippon India Silver ETF, with net assets of Rs 699 crore and Rs 698 crore, respectively, as of May 11.
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Ease of purchase, no concern over purity, and avoiding the trouble of carrying and storing the metal in physical form are the major advantages cited by industry experts for investors considering the asset class. Mehta said that during the pandemic and ensuing lockdown, people had invested in gold while the markets were volatile, and enjoyed decent returns on their investments. Similarly, with silver prices on the rise, this serves as a viable alternative for unforeseen times.