Red-hot white metal: MFs eye silver ETFs

Suresh P. Iyengar | | Updated on: Jan 04, 2022

Silver bars are displayed at the Austrian Oegussa gold and silver separating plant in Vienna, in this file picture taken February 28, 2011. Silver tracked gold higher on April 20, 2011, extending a stellar performance that has seen the grey metal outperform other precious metals this year. Silver hit a 31-year high at $44.56 an ounce and was later bid at $44.51 against $43.89. REUTERS/Lisi Niesner/Files (AUSTRIA - Tags: BUSINESS) | Photo Credit: Lisi Niesner

ICICI Pru Silver ETF will be the first ever financial instrument tracking silver

After a slew of new fund offers, mutual funds are gearing up to flood the market with silver exchange traded funds. ICICI Mutual Fund will launch its silver ETF on Wednesday while Nippon India MF will hit the market with ETF on the white metal next Thursday.

Aditya Birla MF, HDFC MF and Mirae MF have already received market regulator SEBI’s approval to launch silver ETF and they are expected to unveil them sooner than later.

Unlike other existing index-based equity ETFs, gold and silver ETFs hold physical inventory of London Metal Exchange-approved metals. Though silver in physical form has been available to investors, ICICI Pru Silver ETF will be the first ever financial instrument tracking silver. Along with silver ETF, Nippon India MF will also launch a silver fund of fund that will invest in its own ETF and help investors without a demat account to invest in silver.

NIMF is the largest in the ETF space with asset under management of ₹50,977 crore as of last November and commands investor folio market share of 60 per cent. NIMF ETFs recorded over 70 per cent market share in ETF volumes on NSE and BSE in September.

Its Nifty BeES, one of the oldest ETFs, tracks Nifty index and is the most liquid among its peers. Launched in 2007, gold BeES has given returns in excess of 10 per cent since inception.

The annual expense ratio for the ETF is capped by regulation at 1 per cent of assets but the fund house is likely to maintain it at 0.5-0.6 per cent. The expense ratio of FoFs is capped at one per cent.

The passive asset under management of mutual funds has grown multi-fold to ₹3.82 lakh crore as of last November against ₹11,400 crore in 2014.

With most active funds failing to beat their benchmark index, investors are more satisfied about getting market returns than chasing alpha.

SIP for as low as ₹100

Hemen Bhatia, Head ETF, Nippon Life India Asset Management, said investors can start Systematic Investment Plan of as low as ₹100 in silver FoF; most broking firms facilitate SIP in ETFs.

The price of silver has moved from about $30 per ounce at the start of 2012 to about $23 an ounce on weak demand from industrial activity. While Nifty and gold have negative co-relation, silver and Nifty are positively co-related as both are driven by improved industrial activity. Hence, silver ETF cannot be considered as part of diversification from equities, unlike gold ETFs.

Published on January 04, 2022
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