Sebi amends rules for introduction of silver ETFs

Markets regulator Sebi has amended rules to introduce silver exchange traded funds, a move that will expand the options available for investing in commodities through stock exchanges.

Currently, Indian mutual funds are allowed to launch ETFs (Exchange Traded Funds) tracking gold.

The watchdog has amended the rules to enable the introduction of silver ETFs, according to a notification issued on Tuesday.

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Sebi said that a silver ETF scheme means a mutual fund scheme that invests primarily in silver or silver-related instruments which have silver as the underlying product.

"Mutual fund schemes investing in exchange traded commodity derivatives may hold the underlying goods in case of physical settlement of such contracts," the regulator said.

In case of a silver ETF scheme, the assets of the scheme being silver or silver-related instruments may be kept in the custody of a custodian registered with Sebi.

Silver ETF schemes will be subject to certain investment restrictions. The funds of any such scheme will be invested only in silver or silver-related instruments in accordance with its investment objective and the mutual fund may invest such funds in short-term deposits of scheduled commercial banks.

Hemen Bhatia, Deputy Head - ETF at Nippon Life India Asset Management Ltd said, silver ETFs will provide an additional option to investors 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."

With regard to value, Sebi said that silver held by a silver ETF scheme will be valued at the AM fixing price of London Bullion Market Association (LBMA) in US dollars per troy ounce for silver having a fineness of 999.0 parts per thousand.

This is subject to adjustment for conversion to metric measure as per standard conversion rates and adjustment for conversion of US dollars into Indian rupees as per the RBI reference rate declared by the Foreign Exchange Dealers Association of India (FEDAI) along with transportation charges and notional customs duty and other taxes. Like in the case of gold ETFs, silver ETFs too will pass on the benefits of price efficiency, liquidity and convenience to retail investors, experts said.

In a separate notification, the regulator has amended the portfolio management rules to facilitate co-investment by investors of Alternative Investment Fund (AIF) through the portfolio management route.

The portfolio manager providing co-investment services to investors of AIFs will invest 100 per cent of the assets under their management in unlisted securities and will be exempted from certain requirements under portfolio managers rules, including minimum investment amount, and minimum net worth.

Co-investment portfolio manager means a portfolio manager who is a manager of a category I or category II AIF, provides services only to the investors of such category of AIFs and makes investment only in unlisted securities of investee companies where such category I or category II AIFs make investments.

Sebi said that portfolio manager may designate a member of the key investment team of the manager as the principal officer.

The new rules will come into effect from December 9, the Securities and Exchange Board of India (Sebi) said.