Mutual funds ready to launch silver ETFs; are you ready to invest?

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Several big mutual fund houses like HDFC Mutual Fund, DSP Mutual Fund, ABSL Mutual Fund and Nippon India MF have filed draft documents for new silver ETFs. ICICI Prudential Mutual Fund launched a silver ETF that is open for subscription till January 19.

SEBI, in November, issued operating norms for the introduction of silver ETFs. As per the norms, these ETFs have to invest at least 95% of their net assets in silver and silver-related instruments. Until now, gold was the only precious metal that is available for investors in the form of an ETF.

Mutual fund houses believe that silver ETFs can be a good way to diversify your portfolio and hedge it against other non-related asset classes.

“We believe that Silver ETFs will be one of the preferred ways for investors to take exposure to silver as one need not worry about the bulky nature of silver, purity, quality, or liquidity of the investment. Silver is among the preferred options globally when it comes to investing in precious metals. This is because silver is considered as a store of value, hedge against inflation and has a very limited correlation with other asset classes,” says Chintan Haria Head Product & Strategy, ICICI Prudential Mutual Fund.

However, several mutual fund advisors and financial planners believe that investors should think carefully before investing in silver ETFs.

“This is a good option for hedging your portfolio, but you need to keep some things in mind. Just like gold is used as a hedge as well as a lot of investors save up for buying gold later. Similarly, investors should approach the silver ETFs as well. So my view is that investors need to go in with moderate expectations. Silver isn’t going to give you stupendous returns,” says Babu Krishnamoorthy, Chief Sherpa, FinSherpa Investment, a financial advisory firm, based in Chennai.

For new investors, you must know that you cannot invest in silver ETFs like usual mutual fund schemes. You have to have a broking account and a demat account. To redeem your investments, you need to sell these ETFs on an exchange, unlike the general gold funds.

Still, If you are convinced that you need a silver ETF in your portfolio, how do you select one and how much should you invest?

“ETFs do not have much difference in performance because they essentially track the index. So, you can choose anyone from a good fund house. We generally say that commodity funds or schemes used purely for hedging your portfolio should be 5-10% of your investment. Investors should keep in mind that they do not go overboard with such funds. If you already have gold as a hedge in your portfolio, you don’t necessarily need silver too. If you want to invest in gold, don’t invest more than 5%,” says Babu Krishnamoorthy.

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