Silver ETF Explained: Sebi simplifies silver ETF's operating norms, investment objectives, pros and cons

The Securities and Exchange Board of India (SEBI) on Wednesday came out with operating norms for Silver exchange traded funds or Silver ETFs. The market regulator has specified guidelines on investment objectives of silver ETFs, valuation, determination of net asset value (NAV), tracking error as well as tracking difference and disclosure requirements. 

Sebi in its circular said that silver ETFs will have to invest at least 95 per cent of net asset in silver and silver-related instrument. The cumulative gross exposure of silver ETFs will not exceed 100 per cent of the net assets of the scheme. 

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Sunil Katke of Kotak Securities welcomed the SEBI’s move to bring the Silver ETFs in the market and said that it was a missing point till now, considering that the Gold ETF has been there. He said that the Silver ETFs were available in the international markets. 

Katke said that the new guideline regarding e-silver or paperless silver are investor-friendly and people will now be able to hold silver contract for a longer period of time.  

In future contracts, a rollover is required in derivatives after 3-4 months, he further said adding that there is a cost of rollover as well.  

This will also allow small investors to accumulate Silver in small quantities without having to store silver physically. 

Harshvardhan Roongta of Roongta Securities said that Gold was the only option for retail investors to invest in precious metals via Gold ETFs, Gold bonds or Sovereign Gold Bonds. Silver ETFs will give one more option to retail investors to hold commodities or precious metals in their portfolios. In the 10 per cent allocation that one must fix for bullion investment, silver could be a good alternative. It will “definitely” add value. 

He said that the underlying asset will be Silver and the Net Asset Value (NAV) will depend upon the underlying cost of Silver. 

He said that the demat accounts of individual investors will reflect the units bought by them as in the case of shares. The units will be debited from your accounts if you sell them through your brokers, Roongta said.  

Silver ETFs Vs Spot Silver Vs Silver Futures 

- Expert Kishore Narne of Motilal Oswal said that storing silver in physical form is a difficult thing because of weight to value ration not being favourable. It will have an added cost. With Silver ETF this will not be an issue. The fund manger will take care of it. 
- All GST related issues will be taken care by fund managers. It could have a better return from physical silver, he further said.  
- On the flip side, there will be an expense fee or fund management fee every, year. It will be fund manager’s skills to maximise profits, he added.  
- Capital gains tax will be applicable on them – both short term and long term. 
- Investors will not be able to redeem silver in physical forms in case of Silver ETFs.