Silver as an investment avenue has been competing with its yellow metal cousin – Gold – for quite some time now. Silver has weathered the test of time as a tangible asset, also borrowing certain investment-pruned features from Gold such as a hedge against inflation (while being a cheaper alternative to gold).
Silver is both a precious and industrial metal and has a variety of applications such as solar panels, LED lighting, medical devices, etc. Silver; is used in various fields or industries such as automobile, medical, aerospace, aviation and information technology, etc. Besides, silver can also potentially act as leverage against a depreciating rupee. This is because silver prices in India are derived from international silver prices but are then converted after adding currency effects and other costs of landing.
The outlook for silver is bright due to emerging trends in demand, silver is poised to only rise with time as industrial applications expand. A surge in EV demand in automobiles and the full-fledged launch of 5G networks are expected to drive up silver prices significantly. This precious metal is viewed by many investors as a lucrative investment opportunity in the commodities market. By including commodities as an asset class in your portfolio, you may diversify it and design an all-weather portfolio that has one source of profitability even if all other investments are sailing choppy waters. Based on your long-term investing goals, you can allocate a small portion of your portfolio to silver.
However, it is noteworthy that silver is volatile in nature and a high-risk asset class and, therefore, it is suited to investors who have a basic understanding of precious metals and commodity cycles. If you are convinced about the potential of the shiny white metal to diversify your portfolio, the next step is to find the right way to invest in it. You can expose your portfolio to silver by investing in silver-related securities.
It has been pouring silver ETFs since SEBI announced operating norms for the introduction of silver ETFs in November 2021. Many fund houses like ICICI Prudential Mutual Fund, Nippon India Mutual Fund and Aditya Birla Sun Life Mutual Fund have launched exchange-traded funds based on silver. Joining the bandwagon DSP Mutual Fund has launched DSP Silver ETF. It is an open-ended exchange-traded fund replicating/tracking domestic prices of silver.
On the launch of this fund, Mr Anil Ghelani, CFA, Head – Passive Investments & Products at DSP Investment Managers, said, “Investing in silver via an ETF is a modern and smart way for investors to gain exposure to this precious metal in an easy, digital form. Increasing demand for silver in industries, newer technologies and a shift to renewable sources of energy and the safe-haven demand can also act as favourable tailwinds for the metal. However, investors should expect fluctuations in short-term returns, especially during times of market volatility. An investment in DSP Silver ETF is suitable for investors looking to diversify, or for experienced investors or those with access to expert financial advice.”
Table 1: Details of DSP Silver ETF
|An open-ended exchange-traded fund replicating/tracking domestic prices of silver.
|Exchange Traded Fund
|The scheme seeks to generate returns that are in line with the performance of physical silver in domestic prices, subject to tracking errors. There is no assurance that the investment objective of the Scheme will be realized.
|Rs 5,000/- and in multiples of Re 1 thereafter.
|Rs 10/- per unit
|Mr Ravi Gehani
|Domestic Price of Physical Silver (based on London Bullion Market Association (LBMA) Silver daily spot fixing price.)
|August 01, 2022
|August 12, 2022
(Source: Scheme Information Document)
The investment strategy for DSP Silver ETF will be as follows:
DSP Silver ETF will be managed passively with investments in physical silver of prescribed quantity and quality (fineness) and endeavour to track the spot 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.
The scheme will track its underlying index and endeavour to achieve the scheme’s investment objective. The AMC does not make any judgments about the investment merit of underlying assets nor will it attempt to apply any economic, financial or market analysis. Since the scheme is an exchange-traded fund, the scheme will only invest in silver & silver-related securities constituting the underlying index.
The scheme may participate in Exchange Traded Commodity Derivatives (“ETCDs”) with silver as underlying up to 10% of the net asset value of the Scheme. However, the limit of 10% shall not apply to Silver ETFs where the intention is to take delivery of the physical silver and not to roll over its position to the next contract cycle. The expectation is that, over time, the tracking error of the scheme relative to the performance of the underlying Index will be relatively low.
The fund manager will aim to maintain an optimal portfolio turnover rate commensurate with the investment objective of the scheme and the purchase/ redemption transactions on an ongoing basis in the scheme.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation for DSP Silver ETF
|Indicative Allocations (% of Net Assets)
|Silver and Silver Related Instruments*
|Cash and Cash Equivalents@
|Low to Medium
*Includes physical silver and other silver-related instruments which may be permitted by Regulator from time to time. Exchange Traded Commodity Derivatives (ETCDs) having silver as the underlying shall be considered as ‘silver related instrument’.
@Cash and Cash Equivalents will include the following securities having residual maturity of fewer than 91 Days, TREPS, Treasury Bills, Government securities, repo on Government Securities and any other securities as may be allowed under the regulations prevailing from time to time.
(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.
Who will manage DSP Silver ETF?
The designated fund manager for this scheme is Mr Ravi Gehani. He holds an MMS – Finance degree from MET Institute of Management, Mumbai and is a B. Com graduate from the University of Mumbai. He has an overall experience of 9 years in the financial services industry. Before joining DSP AMC, he was associated with Muthoot Exim Pvt Ltd. as Assistant Manager, managed various roles in Bullion Price Risk, Products and Operations, with S-Ancial Global Solutions Pvt Ltd. as Analyst, Investor Relations and with Latin Manharlal Commodities Pvt Ltd. he worked as a commodities trader.
At DSP Mutual Fund, Mr Gehani currently does not manage any other schemes.
Fund Outlook – DSP Silver ETF
DSP Silver ETF aims to invest in physical silver and silver-related instruments and it is a modern, smart way to own silver with 99.9% purity in an easy digital form. The scheme seeks to generate returns that are in line with the performance of physical silver in domestic prices as derived from the LBMA (London Bullion Market Association), subject to tracking error.
Many specialised devices, including the future 5G technology ecosystem, solar panels, satellites, electric vehicles, etc., utilize silver extensively. Electronics, automotive, electrical, pharmaceutical, and many more industries use 50% of the world’s silver, but recycling options are limited. Since silver is an essential raw material, demand may increase as the globe transitions to cleaner & renewable energy sources.
Silver can be a good diversifier for your portfolio in commodity as an asset class and in volatile times since commodity price movements have a low correlation with equities. In comparison to purchasing physical silver, the scheme offers investors a better alternative because it has higher liquidity and lower storage costs. The price history of silver illustrates that the commodity appreciates in value as inflation rises.
However, do note that 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.
Additionally, the persistent repercussions of the Russia-Ukraine conflict, spiralling inflation and the RBI’s recent announcement to hike policy rates again by 50 basis points to curb demand and control inflation may cause a significant risk to the economic growth and keep the commodity market volatile in the near term. However, rising industrial demand may work in favour of silver prices.
Thus, investment in DSP Silver ETF is a high-risk strategy and suitable for experienced investors who understand precious metals or commodities cycles. Ensure you have a high-risk appetite, a long investment horizon to benefit from the future potential of silver and that your investment objectives align with the fund.
This article first appeared on PersonalFN here