Silver ETFs to help investors diversify their portfolio: Experts

NEW DELHI: With the introduction of standards for exchange-traded funds (ETFs) on silver, investors will be able to invest in silver in a more liquid way and help diversify the portfolio, experts said on Sunday.
The Securities and Exchange Board of India (Sebi) has set operating standards for silver ETFs, according to which such a program will need to invest at least 95% in silver and money-related instruments. The standards will come into effect on December 9, 2021.
Currently, Indian mutual funds are allowed to launch ETFs on gold.
“Now people will be able to hold money by investing in a silver ETF. Since this is a highly regulated product, investors will be sure of its purity, unlike what they buy on the open market, ”said Swapnil Bhaskar, head of strategy at Niyo. – a neo-banking platform for millennials to invest.
Priti Rathi Gupta, founder of LXME – a financial platform for women – said that “investors will now be able to invest in silver in a more liquid way compared to traditional methods of investing in silver”.
Also, it will help diversify the portfolio, as silver is a precious metal, after gold, she said.
“It will become very convenient for investors to have exposure to silver as a commodity in a transparent way, in addition to their exposure to gold,” said Hemen Bhatia, Deputy Director – ETF, Nippon Life India Asset Management Ltd.
Under the standards, the silver ETF system will be compared to the price of silver (based on the London Bullion Market Association or LBMA daily spot fixing price of silver) and net worth Inventory (NAV) of these ETFs will be reported daily on the AMC website.
This move will give investors a more realistic valuation of the precious metal.
These standards are in line with the existing regulatory mechanism for gold ETFs, as Sebi continues to follow the same practice of having AMCs hold 99.9% pure silver bullion through the LBMA, this which allows retail investors to invest in silver ETFs without having to worry about purity, risk, storage and insurance, Gupta said.
“There is now uniformity in the specifications of these products. This makes investing in money easier, accessible and transparent for investors, who will benefit from professional fund management,” she added. .
While the daily spot fixing price of LBMA silver has been chosen as the benchmark for silver ETFs, the same has not been stipulated for the valuation of fund assets where the demand is to determine the fair market value which would largely be the operational price in the national physical market. markets, said Chirag Mehta, senior fund manager-Alternative Investments, Quantum Mutual Fund.
“There is often a disparity between the prices of silver denominated in Indian rupees equivalent to the LBMA and the domestic prices of silver in Indian markets. This difference can lead to a higher tracking error, which is not nothing more than an anomaly in comparison. to be aligned, ”he added.
Regarding the indicative net asset values ​​of silver ETFs, Mehta said that net asset values ​​that are to be disclosed on stock exchanges on an ongoing basis during trading hours are best provided to exchanges by independent third-party agencies appointed by fund instead of fund houses.
A similar framework is followed in other markets such as the United States where it is prevalent. The Indian ecosystem currently lacks the presence of such entities, he added.
The regulator has proposed the appointment of a dedicated fund manager for commodity-based funds like gold ETFs and silver ETFs. “We believe that since these products are passively managed, it is not necessary to have a dedicated fund manager or, to put it correctly, the list of funds should not be limited to commodities funds just for this. fund manager, ”Mehta said.
“However, we agree with the argument that such a fund manager should have adequate knowledge and understanding of commodity markets,” he added.

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