Market regulator SEBI has amended the mutual fund regulation to allow the launch of exchange-traded funds on silver. Making amendments to the existing regulations, SEBI said silver ETF will invest primarily in silver or silver-related instruments as specified by the Board from time to time, which has silver as the underlying product.

Mutual funds have to appoint a custodian to keep custody of the securities of silver or silver-related instruments and provide other custodial services as may be authorised by the trustees, said SEBI.

The funds collected under silver ETF will be invested only in silver or silver-related instruments in accordance with its investment objective, except to the extent necessary to meet the liquidity requirements for honouring repurchases or redemptions, it said.

Pending deployment of funds, SEBI said the mutual fund may invest such funds in short-term deposits of scheduled commercial banks.

LME price

The silver held by a silver ETF scheme will be valued at the AM fixing price of London Bullion Market Association in US dollars per troy ounce for silver having a fineness of 999.0 parts per thousand, said SEBI. Mutual funds are allowed to incur transportation charges of silver from LBMA to the custodian vault and other notional levies, it said.

Chintan Haria, Head Product and Strategy, ICICI Prudential AMC, said traditionally in India, people have been investing in gold and silver physically as they are considered to have a store of value.

With the growing financialisation, Silver ETF will be one more tool along with Gold ETF through which investors can participate in commodity markets in a meaningful way, he said.

“Since silver is bulky in nature and hence difficult to store, we believe the ETF form will be one of the preferred ways for investors to take exposure to silver in financial investment form,” he added.

Another asser class

Hemen Bhatia, Deputy Head - ETF, Nippon Life India Asset Management Ltd, said Silver ETFs will provide an additional option to invest in commodity as an asset class. Additionally, it will help investors to diversify their portfolio as part of their asset allocation, due to low correlation with other asset classes, he added.

Currently, the US domiciled Silver ETFs has the highest assets, followed by the ones domiciled in Switzerland and Ireland. The US has the highest asset of $13 billion under silver ETF with iShares Silver Trust accounting for about $12 billion. Switzerland and Ireland have silver ETF asset of $2 billion and $1 billion, respectively.