The world is transforming across multiple sectors, including mobility, energy generation, space exploration, electronics, technology, etc. There has been a greater emphasis on using eco-friendly technologies to address the climate change. Different resources are required to ensure the progression of each of these advancements, and silver is a common element.
India’s silver production has been steadily increasing over the years and has shown a growth of 80% from 2015 to 2020. Increased emphasis by countries across the globe on Photovoltaic (power, which is one of the leading sources of green electricity) will lead to rise in usage of silver in solar panels. The industrial sector contributes majorly towards the demand for Silver; it is used in various fields or industries where high pressure or excess heat generation is required, such as semi-conductors, wireless communication, automotive, medical, aerospace, and aviation.
The outlook for silver is bright due to emerging trends in demand, and many investors consider this precious metal as an investment opportunity in the commodities market. This will provide diversification to investors in their portfolios and add up to their basket of commodity investments.
After SEBI announced operating norms for the introduction of silver ETFs in November 2021, it’s been raining Silver ETFs. Since many fund houses are in the race to launch exchange traded funds and fund of funds based on silver. Nippon India Mutual Fund has launched two new schemes based on silver, Nippon India Silver ETF and Nippon India Silver ETF FoF.
Commenting on the launch of the new ETF and FoF, Mr Hemen Bhatia, Head ETF at Nippon India Mutual Fund, said, “Historically, Silver has a relatively low correlation to Indian Equity Indices, and hence, it will provide an opportunity to investors to diversify their portfolio as part of their asset allocation. Further, investing through Nippon India Silver ETF or Nippon India Silver ETF Fund of Fund (FOF) will provide the benefit of hassle-free storage, investing in small denominations, no fear of theft, easy liquidity as against holding physical silver, and no worries about the purity of silver.”
Table 1: Details of Nippon India Silver ETF
| Type | An open-ended scheme, listed on the Exchange in the form of an Exchange Traded Fund (ETF) investing in physical silver and / or Exchange Traded Commodity Derivatives (ETCD) in Silver | Category | Exchange-traded fund |
| Investment Objective | The investment objective of the scheme is to generate returns that are in line with the performance of physical silver in domestic prices, before expenses, subject to tracking errors. However, there can be no assurance or guarantee that the investment objective of the Scheme will be achieved. | ||
| Min. Investment | Rs 1,000 and in multiples of Re 1/- thereafter. | Face Value | Rs 10/- per unit |
| Entry Load | Not Applicable | Exit Load | Nil |
| Fund Manager | Mr Vikram Dhawan | Benchmark Index | The domestic price of Silver (based on LBMA Silver daily spot-fixing price) |
| Issue Opens | January 13, 2022 | Issue Closes | January 27, 2022 |
(Source: Scheme Information Document)
The investment strategy for Nippon India Silver ETF will be as follows:
Nippon India Silver ETF is a passively managed exchange-traded fund that will employ an investment approach designed to track the performance of the Domestic Price of Silver as derived from the LBMA (London Bullion Market Association) AM fixing prices. As per the SEBI rules, all Silver ETFs must hold silver having 99.9% purity.
Secondly, the Scheme will invest at least 95% of its total assets in silver or silver-related instruments, i.e., Exchange Traded Commodity Derivatives (ETCDs) that have silver as an underlying asset. The exposure to silver ETCDs will not exceed 10% of the Scheme’s net asset value (NAV), and it may hold up to 5% of the total assets in Debt or money market securities.
The Fund Manager would monitor the tracking error of the scheme on an ongoing basis and would seek to minimize it. The scheme may also invest in cash and debt/ money market instruments in compliance with regulations to meet liquidity and expense requirements.
Under normal circumstances, the Asset Allocation will be as under:
Table 2: Asset Allocation for Nippon India Silver ETF
| Instruments | Indicative Allocation (% of net assets) | Risk Profile | |
| Minimum | Maximum | High/Medium/Low | |
| Physical Silver and Silver Related Instruments# | 95 | 100 | Medium to High |
| Money Market Instruments* including Tri-Party Repo on Government securities or Treasury bills, cash & cash equivalents | 0 | 5 | Low to Medium |
#Silver related instruments that may be permitted by SEBI from time to time, subject to prior regulatory approval, if any. This will also include Exchange Traded Commodity Derivatives (ETCDs), where participation will be limited to derivatives contracts in Silver.
*Money Market Instruments include commercial papers, commercial bills, treasury bills, and Government securities having an unexpired maturity up to one year, call or notice money, certificate of deposit, usance bills, BRDS, Tri-Party Repos, and any other like instruments as specified by the Reserve Bank of India.
(Source: Scheme Information Document)
About LBMA (London Bullion Market Association)
The London Bullion Market Association is the international trade association representing the global OTC (Over the Counter) bullion market for precious metals such as gold and silver. LBMA is associated with miners, investors, fabricators, ETFs, refiners, manufacturers, consumers, and central banks from around the world. It serves as a point of contact for regulators, investors, and clients, and, most importantly, it is the voice of the global precious metals market.
Table 3: Details of Nippon India Silver ETF FoF
| Type | An Open-Ended Fund of Fund scheme investing in units of Nippon India Silver ETF | Category | Fund of Fund |
| Investment Objective | The investment objective of the Scheme is to seek to provide returns that closely correspond to returns provided by Nippon India Silver ETF by investing in units of Nippon India Silver ETF. However, there can be no assurance or guarantee that the investment objective of the Scheme will be achieved. | ||
| Min. Investment | Rs 100 and in multiples of Re 1/- thereafter. Additional Purchase Rs 100 and in multiples of Re 1/- thereafter. | Face Value | Rs 10/- per unit |
| Plans |
|
Options |
|
| Entry Load | Not Applicable | Exit Load |
|
| Fund Manager | Mr Mehul Dama | Benchmark Index | Domestic Price of Silver (based on LBMA Silver daily spot fixing price) |
| Issue Opens | January 13, 2022 | Issue Closes | January 27, 2022 |
(Source: Scheme Information Document)
The investment strategy of Nippon India Silver ETF FoF will be as follows:
Nippon India Silver ETF FoF scheme will predominantly invest in Nippon India Silver ETF units. Further, Nippon India Silver ETF Fund of Fund (FOF) can buy/sell the units of the underlying scheme in creation unit size by way of cash.
The investments could be made in Nippon India Silver ETF units either directly through Nippon Life Asset Management Limited (NAM India) in creation unit size or through the secondary market via stock exchange route. The facility to buy directly through NAM India in creation unit size would provide Nippon India Silver ETF Fund of Fund (FOF) an additional source to purchase the units in addition to the stock exchange route.
The investment strategy would largely be passive in nature. The scheme will endeavour that the returns of Nippon India Silver ETF Fund of Fund (FOF) will replicate the underlying ETF’s generated returns and are not expected to deviate more than 2% on an annualized basis net of recurring expenses in the Scheme. The fund managers will monitor the tracking error of the Scheme on an ongoing basis and seek to minimize it.
A small portion of the net assets may be invested in Debt and money market instruments as permitted by SEBI/RBI, including call money market or Tri-party Repo on Government securities or treasury bills or repo, to meet the liquidity requirements of the Scheme. The Scheme may also hold the cash from time to time.
Under normal circumstances, the Asset Allocation will be as under:
Table 4: Asset Allocation for Nippon India Silver ETF FoF
| Instruments | Indicative Allocation (% of net assets) | Risk Profile | |
| Minimum | Maximum | High/Medium/Low | |
| Units of Nippon India Silver ETF | 95 | 100 | Medium to High |
| Money Market Instruments* including Tri-Party Repo on Government securities or Treasury bills, cash & cash equivalents | 0 | 5 | Low to Medium |
*Money Market Instruments include commercial papers, commercial bills, treasury bills, and Government securities having an unexpired maturity up to one year, call or notice money, certificate of deposit, usance bills, BRDS, Tri-Party Repos, and any other like instruments as specified by Reserve Bank of India from time to time.
(Source: Scheme Information Document)
Who will manage the Nippon India Silver ETF and the Nippon India Silver ETF FoF?
Mr Vikram Dhawan will be the designated fund manager for Nippon India Silver ETF, and Mr Mehul Dama will manage Nippon India Silver ETF FoF.
Mr Vikram Dhawan has an overall experience of 25 years in the commodities market, and he holds a B.E. degree and PGDMM. Prior to joining Nippon India AMC, he was associated as Risk Manager, Gold Matrix Pte, Singapore, Head Commodities at Reliance Capital Limited, Head Commodity Risk Management at Vedanta Group, COO at Zee Gold Refinery (Shirpur Gold Refinery), Country Manager at N.M. Rothschild & Sons., Associate Director at Bank of Nova Scotia, Head Commodity Hedging at Birla Copper (Hindalco), Materials Officer at Synthetics & Chemicals Ltd.
At Nippon India AMC, Mr Dhawan currently manages the Nippon India Multi Asset fund.
Mr Mehul Dama is a B.com graduate and a Chartered Accountant (CA) with an overall experience of 14 years in the financial services industry. Before joining Nippon India AMC, he was associated with Goldman Sachs Asset Management (India) Private Limited as Vice President – Controllers, Benchmark Asset Management Company Private Limited as Assistant Vice President – Operations / Controllers, and Lovelock & Lewes as Assistant Manager.
At Nippon India AMC, Mr Dama currently manages Nippon India ETF Consumption, Nippon India ETF Dividend Opportunities, Nippon India ETF Gold BeES, Nippon India ETF Infra BeES, Nippon India ETF Nifty 100, Nippon India ETF NV20, Nippon India ETF PSU Bank BeES, Nippon India ETF Sensex, Nippon India ETF Shariah BeES, Nippon India Index Fund – Nifty Plan, Nippon India Index Fund – Sensex Plan, Nippon India Gold Savings Fund, Nippon India ETF Nifty Midcap 150, Nippon India Junior BeES FoF, Nippon India ETF Sensex Next 50, Nippon India ETF Nifty IT, Nippon India Nifty Smallcap 250 Index Fund, Nippon India Nifty Midcap 150 Index Fund, Nippon India Nifty 50 Value 20 Index Fund, and Nippon India Nifty Pharma ETF.
Fund Outlook – Nippon India Silver ETF and Nippon India Silver ETF FoF
Nippon India Silver ETF aims to invest in physical silver bars having 99.9% silver purity and provide returns that closely correspond with the performance of physical silver in domestic prices as derived from the LBMA (London Bullion Market Association) AM fixing prices, subject to tracking errors. Nippon India Silver ETF FoF aims to simply invest in Nippon India Silver ETF units and replicate the underlying ETF’s performance.
Investors need not worry about the fear of theft as well as storage issues and insurance costs, as physical silver will be stored with SEBI registered custodians. Both the schemes offer investors a better alternative to benefit from appreciation in prices of silver compared to physical silver because it provides higher liquidity and less storage costs.
Silver is widely used in specialist electronics such as the new 5G technology ecosystem to make various technical parts, solar panels, satellites, electric vehicles, etc. The schemes offer investors an easy diversification in commodity as an asset class via a single unit of Silver ETF through digital medium to achieve desired asset allocation. Investment in silver acts as a hedge against inflation; it has a low correlation with other asset classes and can protect against loss in purchasing power. Relative low correlation to Indian indices may provide an opportunity for better risk adjusted returns.
Silver is more volatile in nature than gold since it is an industrial metal. Gold has traditionally been driven by safe-haven demand, whereas silver has been driven by industrial demand. As per historical data, silver tends to outperform gold during periods of economic expansion when industrial demand grows but underperforms gold during periods of economic stress. The rapid rise in cases of the new Omicron variant and the US Federal Reserve’s plans of tightening their monetary policy is expected to keep the commodity market volatile. However, rising industrial demand can work in favour of silver prices.
Thus, these schemes are appropriate for investors with a fairly high-risk appetite and a long investment horizon to benefit from future potential of silver. Before investing, ensure your investment objectives align with the mutual fund scheme.
This article first appeared on PersonalFN here
