The Mutual Fund Show: Should Investors Consider Silver ETFs?

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Mutual fund investors can substitute physical gold by investing in exchange-traded funds with the yellow metal as the underlying asset. They now has a similar option for silver.

Three asset managers, including ICICI Prudential Mutual Fund and Aditya Birla Sun Life Asset Management Co., are launching silver exchange-traded funds in January. In September last year, the market regulator had allowed silver ETFs.

“Silver ETF, much like gold ETF, is a very simple way of investing in silver as a commodity through the financial route,” Chintan Haria, head of product and strategy at ICICI Prudential Mutual Fund, told BloombergQuint’s Niraj Shah on a weekly special series The Mutual Fund Show. “This is a simple way for investors to participate into a financial product which will ultimately get listed on the exchange and investors can buy and sell. They basically will get exposure to silver and the price of silver in international markets is converted into Indian rupees.”

According to Gaurav Rastogi, founder and chief executive officer of Kuvera.in, having an easier way to invest in silver or hold silver is a good idea. Silver is a “bit more procyclical” to growth than gold because of its industrial uses, he said on the same show.

Rastogi urged investors to look at the gold-silver ratio, which is trading at one of its lowest points. The biggest risk factor for gains in any silver ETF, according to him, is that both the metals are losing the “cachet of safe assets”.

“People are happy with currencies. They’ve not had a very bad tail risk event in a very long time where you would hear stories that nothing but gold would work, or nothing but silver would work. That kind of framing is one of the risk factors…but otherwise a great opportunity for precious metal investors who now have a very easy way of buying silver,” Rastogi said.

Besides, the returns from silver can move higher in the times to come, they said.

According to Haria, “for almost 10 years, silver has had virtually no return, except for one big jump that we saw between March 2020 and August 2020 where silver and gold jumped, but a 10-year CAGR is only about 2% in silver”.

Over the next two years, he said, there’s a potential for a step-up jump in silver given its industrial usage across electric vehicles to 5G mobile technology and the medical industry. “Silver is a good addition for diversification of portfolio, especially when other asset classes like equities and debt are not looking that attractive on a relative valuation basis.”

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