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In charts | Silver ETFs to be available soon: But are they worth investing in?

Silver acts as hedge against economic uncertainties and provides diversification to your investments

October 04, 2021 / 09:28 AM IST
1Intro
Market regulator SEBI, in its board meeting on September 28, approved the launch of silver exchange-traded funds (ETFs) in India. So far, only gold ETFs have been available. Fund houses buy and store physical gold on behalf of the investors in ETFs. Similarly, silver ETFs are likely to enable investors, access to paperless silver.
2Uses of silver
Silver not only acts as a precious metal, but also has many industrial uses. Its demand spans industry, investment and jewellery. Savvy investors tap the opportunity in silver through physical holding. Silver ETFs will enable small investors, too, to participate in the rally of the commodity.
3 Factors affecting silver prices
(i). Economic events such as domestic industrial growth, the global financial situation and inflation. (ii) Geopolitical events, including armed conflict (iii) Commodity-specific demand-supply dynamics such as construction of new production facilities and unexpected mine or plant closures.
4 Relationship between Gold n Silver
Silver is more volatile in nature compared to gold. Experts attribute this to the quantum of supply in silver being higher than in gold (total supply of new silver each year is close to 1 billion ounces, while gold supply is around 120 million ounces), silver’s lower price makes the value of annual supply much smaller than gold’s. Compared to gold, it takes relatively small amount of money to have a greater impact on the prices of silver. As a result, silver will rise more than gold on rallies, and fall more than gold during corrections.
5 Gold, silver n Nifty 50
Though silver have a high correlation with gold, it has low correlation with Indian equities. When equity tumbles, silver delivers positive returns. Like gold, silver acts as hedge during uncertainties. Gold and silver have not outperformed equities over longer terms. It is better to have 5-10 percent of your portfolio in gold and silver together at any point of time.
6
Ever since the India’s first gold ETF (Benchmark Gold BeES, now Nippon India Gold BeES ETF) was launched in 2007, retail investors have tapped the opportunity and invested in those. As of June 2021, around 13 percent of the Gold ETFs’ AUM belonged to retail investors. Introduction of silver ETFs will enable retail investors to benefit from the opportunities available in silver as a commodity. The physical silver market in India is sufficiently deep to support silver ETFs.
7 US Silver ETFs
Investors buy silver for similar reasons as gold. Silver, too, provides a potential safe-haven asset during economic uncertainties and acts as a portfolio diversifier. Uncertainties ignited by COVID in 2020 pushed prices of silver and brought in more inflows into silver ETFs.
8. Types of Silver ETFs
In developed markets, asset management companies launch exchange-traded funds that track silver prices in two ways. While some schemes replicate the returns in silver by use of derivatives (investing in futures), others prefer to buy physical silver bars for the same. Some ETFs also offer leveraged exposure to the underlying metal. In India, SEBI has indicated that the silver ETFs will be launched with certain safeguards, in line with the existing regulatory mechanism for gold ETFs.
Auto-Tax_pic
Silver ETFs are likely to have similar tax implications as Gold ETFs. Redemption of gold ETFs will attract a long-term capital gains tax of 20 percent (for a holding period of more than 36 months). But if you sell these ETFs before 36 months, then you have to pay short-term capital gains tax at your slab rate.
Dhuraivel Gunasekaran
first published: Oct 4, 2021 09:28 am

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