As investors look for innovative ways to diversify their portfolio, silver can be a useful tool for diversification while also exposing investors to a metal that is powering new-age industries. Financial assets tend to get affected and hit harder by economic turmoil and impacted by issues like inflation. Physical assets like gold and silver are known to be more resilient against these issues and market volatility.
Silver is a voluminous metal, and it’s Demand Growth is expected to exceed Supply Growth. Silver Mining is well spread geographically and tends to outperform during periods of high macroeconomic uncertainty. Silver’s atomic characteristics make it a useful raw material for a variety of businesses. Modern technology that addresses global concerns are powered by silver.
Silver has a variety of industrial supply & demand dynamics, unlike other precious metals. Silver is being actively adopted in Electric Vehicles; there is an increase demand of silver as EVs use almost twice the silver used in the traditional Internal Combustion Engine (ICE) car.
(Source: HDFC Silver ETF FoF PPT)
Precious metals like Gold or Silver have demonstrated their ability as resilient investment avenues in the past and should, therefore, form a vital component of the investor’s portfolio. An individual may find it challenging to invest in physical silver and store it securely; therefore, investors may consider investing in mutual funds that replicate the performance of silver. Investment in Silver ETF is a digital way to invest in silver, eliminating the need to store silver physically.
With this backdrop, HDFC Mutual Fund has introduced HDFC Silver ETF Fund of Fund, an effective and hassle-free way of investing in silver. The scheme is an open-ended Fund of Fund scheme investing in HDFC Silver ETF.
Commenting on the launch of this fund, Mr Navneet Munot, Managing Director and Chief Executive Officer at HDFC Asset Management Co. Ltd., said, “The HDFC Silver ETF FOF will provide investors with the opportunity to invest in silver which serves dual utilities of being a precious metal and an industrial commodity. Festive times such as the upcoming Dhanteras are a perfect time to invest in this auspicious metal – Silver.”
Table 1: Details of HDFC Silver ETF Fund of Fund
|An open-ended Fund of Fund scheme investing in HDFC Silver ETF.
|Fund of Fund
|To seek capital appreciation by investing in units of HDFC Silver ETF (HSETF). There is no assurance that the investment objective of the scheme will be realized.
|Rs 100/- and in multiples of Re 1/- thereafter. Additional Purchase Rs 100/- and in multiples of Re 1/- thereafter.
|Rs 10/- per unit
|Mr Krishan Kumar Daga
|Domestic Prices of physical Silver (based on LBMA Silver daily spot fixing price)
|October 07, 2022
|October 21, 2022
(Source: Scheme Information Document)
The investment strategy for HDFC Silver ETF Fund of Fund will be as follows:
HDFC Silver ETF Fund of Fund scheme follows a passive investment strategy and will invest in HDFC Silver ETF. The scheme shall buy/sell HDFC Silver ETF units either directly with the fund or through the secondary market on the Stock Exchange(s).
The underlying scheme invests in physical silver of prescribed quantity and quality (fineness) and endeavours 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. HDFC Silver ETF Fund of Fund will track the performance of the underlying ETF. The expectation is that, over time, the tracking error of the scheme relative to the performance of the underlying fund will be relatively low.
The AMC does not make any judgments about the investment merit of silver or particular security, nor will it attempt to apply any economic, financial or market analysis. Investment in Debt securities and money market instruments will be as per the limits in the asset allocation table of the scheme, subject to permissible limits laid under SEBI (MF) Regulations. Investment in debt securities will be guided by credit quality liquidity, interest rates and their outlook. The scheme may also invest in the schemes of Mutual Funds in terms of the prevailing SEBI (MF) Regulations.
Under normal circumstances, the Asset Allocation will be as under:
Table 2: Asset Allocation for HDFC Silver ETF Fund of Fund
|Indicative Allocation (% of net assets)
|Units of HDFC Silver ETF
|Debt Securities & Money Market Instruments
|Low to Medium
(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 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 worldwide. 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 HDFC Silver ETF Fund of Fund?
The designated fund manager for this scheme will be Mr Krishan Kumar Daga. He is a B. Com graduate and has over 32 years of experience, of which 13 years in Equity Research and over 14 years in Fund Management. Prior to joining HDFC AMC, he was associated with Reliance Capital Asset Management Company Ltd. as Fund Manager/Head – ETF, Reliance Capital Ltd. as Vice President, and Deutsche Equities as Vice President.
At HDFC Mutual Fund, Mr Daga currently manages HDFC Arbitrage Fund, HDFC Banking ETF, HDFC Equity Savings Fund (Arbitrage Assets), HDFC Gold ETF, HDFC Gold Fund (FOF), HDFC Index Fund – NIFTY 50 Plan, HDFC Index Fund – SENSEX Plan, HDFC Multi-Asset Fund (Gold related instruments and Arbitrage Assets), HDFC NIFTY 50 ETF, HDFC SENSEX ETF, HDFC Nifty 100 ETF, HDFC NIFTY Bank ETF, HDFC Nifty Next 50 ETF, HDFC Nifty 100 Index Fund, HDFC Nifty100 Equal Weight Index Fund, HDFC S&P BSE SENSEX ETF, HDFC NIFTY50 Equal Weight Index Fund, HDFC Developed World Indexes Fund of Funds, HDFC NIFTY50 Value 20 ETF, HDFC NIFTY100 Quality 30 ETF, HDFC NIFTY Growth Sectors 15 ETF, and HDFC NIFTY Next 50 Index Fund.
Fund Outlook – HDFC Silver ETF Fund of Fund
HDFC Silver Fund of Fund scheme aims to simply invest in units of HDFC Silver ETF and replicate the underlying fund’s performance. The scheme offers investors a better alternative to benefit from the appreciation in prices of silver compared to physical silver because it provides higher liquidity and less storage costs.
Silver is a versatile commodity and has a potential demand due to its immense industrial applications, from solar panels, smartphones, new 5G technology ecosystem, electric vehicles, and pharmaceuticals to water purification projects and ventures. According to the World Silver Survey 2022, silver demand is roughly split by 50% between industrial applications and jewellery and investment demand.
The history of silver prices illustrates that the commodity appreciates in value as inflation rises. 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. Being a globally priced metal, it acts as a hedge against currency depreciation. In comparison to purchasing physical silver, the schemes offers investors a better alternative because it has higher liquidity and lower storage costs.
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. Additionally, the persistent repercussions of the geopolitical tension, spiralling inflation and the recent hike in policy rates again by 50 basis points may cause a significant risk to economic growth and keep the commodity market volatile in the near term. The mix of macroeconomic and supply-demand dynamics affects the price of silver. But, rising industrial demand may work in favour of silver prices.
Thus, the scheme is suitable for experienced investors with a high-risk appetite and those who understand the precious metals or commodities cycles. Before investing, ensure a long investment horizon to benefit from the future potential of silver, and your investment objectives should align with the fund.
This article first appeared on PersonalFN here