Silver ETFs getting investors' traction; asset bases reach Rs 1,800 crore

Silver exchange-traded funds (ETFs) are becoming popular among investors as the newly-created investment class has attained an asset base of nearly Rs 1,800 crore till March 2023 within one and half years of the introduction of the product by markets regulator Sebi.

Silver ETFs are following the trajectory of Gold ETFs as the ETF route offers the assurance of metal purity, no storage hassles of the physical metal, and ease of buying, Hemen Bhatia, Head - ETF, Nippon Life India Asset Management Ltd, said.

According to data from the Association of Mutual Funds in India (Amfi), the industry has seven silver ETFs-- Nippon India Silver ETF, ICICI Prudential Silver ETF, Aditya Birla Sun Life Silver ETF, HDFC Silver ETF, Axis Silver ETF, Kotak Silver ETF, and DSP Silver ETF-- with an asset under management of Rs 1,792 crore as of March 2023. All these funds were launched in 2022.
In addition to these, UTI Silver Exchange Traded Fund was launched in April this year.

Of these Rs 1,792 crore asset bases, Nippon India Silver ETF and ICICI Prudential Silver ETF contributed 80 per cent of the total AUM.

Till March 2022, there were only three silver ETFs -- Nippon India Silver ETF, ICICI Prudential Silver ETF, and Aditya Birla Sun Life Silver ETF -- with an asset base of Rs 777 crore.

Kaustubh Belapurkar, Director- Manager-Research at Morningstar India, said that silver prices were volatile in the first half of 2022 on the back of rising interest rates. More recently, silver prices have witnessed significant appreciation over the last six months.

"Investors have been adding positions in Silver ETFs over the past year given its additional sheen of increasing demand from industrial uses," he added.

The Securities and Exchange Board India (Sebi) allowed asset management companies to launch silver funds in November 2021.

A Silver ETF scheme means a mutual fund scheme that invests primarily in silver-related instruments.

"Exposure to Silver ETF offers asset allocation benefits as silver like gold has a negative correlation with other asset classes such as equities and fixed income. This helps in reducing overall portfolio risk and offers a better risk-adjusted return at the portfolio level," Nippon Life India Asset Management Ltd's Bhatia added.

Before the introduction of silver ETFs, physical silver and silver futures were the available investment avenues for those looking to take exposure to this asset class.

However, physical silver comes with new drawbacks such as purity concerns and price, inefficiencies. Futures, on the other hand, were not suitable for retail investors.

Apart from being used as an investment, silver also finds its way into industrial, and manufacturing sectors. Higher demand for silver from new-age industries, like electric vehicles, solar, and 5G, also seems to have created more consciousness among investors about the impact of investing in silver.

Before the introduction of Silver ETFs, Indian mutual funds were allowed to launch ETFs tracking gold. Gold ETFs have assets under the management of Rs 22,737 crore at the end of March 2023.

Overall, India is the third largest silver physical investment market in the world after Germany and the US. The size of the silver physical investment market in India is roughly USD 1 billion per year.