Diwali is round the corner and traditionally it’s an auspicious time to accumulate precious metals. This time around, investors can think of silver, too, for their portfolio. No doubt, both gold and silver are glittering currently due to the geopolitical tension and higher inflation across the world that pushed investors towards these safe havens. In fact, silver has drawn greater interest from global as well domestic investors in recent times.
Silver is special to domestic investors, as it is used as house-hold utensils and jewellery. However, it has turned as an investment asset class recently with the emergence of silver exchange traded funds. In 2021, SEBI gave permission to asset management companies to launch ETFs.
Akin to gold ETFs, silver ETF invests its underlying assets in silver and silver-related instruments. The ETF portfolio invests up to 95 per cent of its corpus in physical silver that is stored in vaults or products like Exchange Traded Commodity Derivatives (ETCDs).
As silver ETFs track the price of silver in open markets, fluctuation in underlying price will impact the NAV of the ETF.
To mitigate the risks associated with handling, storing and safekeeping, the physical silver will have adequate insurance cover. ETFs are more liquid than physical silver, as it can easily be traded in stock markets. Silver ETF helps investors own a quantity of silver to their exact value.
Currently, there are seven ETFs based on silver in the domestic market. The assets under management of silver ETFs climbed steadily and at the end of September, combined asset-base stood at ₹2,300 crore. Besides, these ETFs also witnessed steady rise in trading volumes at the bourses and most of them are liquid.
On the returns front too, these ETFs fared better in the last one-year timeframe. Silver ETFs gave a return of 21-26 per cent, beating gold ETFs’ return of 20-21 per cent on the exchange.
Points to ponder
Investors should keep in mind that one year is too short term to take a view on any asset class. In fact, silver is one of the highly volatile assets. After hitting a high of $48.58/ounce in May 2011 at the London Metal Exchange (LME), the metal is yet to go anywhere near that level in the 12 years since. At best, silver reached close to $28 in May 2021. Since then, the commodity is ruling between $15 and $26. Currently, it is hovering around $22.65.
Besides global price at the LME, rupee-dollar movement will also impact the domestic silver price. So, this makes silver ETF a riskier asset class.
The minimum holding period for long-term capital gains tax for Silver ETFs is 3 years. For those who wish to cash out before that, profits will be taxed as per one’s income-tax slab.
Notwithstanding volatility, considering the current uncertainty in the global economy and the inflation across the world, the outlook for silver appears bright. Analysts expect at least a 10 per cent rise from the current levels in the next one year, expecting a slowdown in developed economies.
Investment in commodities like gold and silver helps in diversifying overall portfolio by reducing the risk. Investors can either buy directly from the AMCs, or through the exchanges in secondary market.