Every festive season is also a time of new economic activity, whether buying, selling or investing.
This Diwali a new investing field of fractional real estate opened up. Next year the new star would be the silver ETF. Gold is the traditional and trusted investment commodity, especially in the Indian market, and also it is the only commodity ETF in India.
Recently SEBI approved Indians to invest in silver ETF, allowing mutual fund companies to attract investors to the commodity. This will diversify the investment portfolio.
Until now sliver could only be invested as future segments, which is not a long-term investment.
Globally, ETFs are available in crude oil, silver, etc. which are investors favourites for a long time. But in the case of silver, it is not just a precious metal. It is also used for making semiconductors, electric goods and EVs.
In the case of India, when the new asset cases are present in the market, it will make investors try different combinations and invest in the best. Like Gold ETFs and SGBs, silver ETFs can turn into a significant interest in the portfolios.
Silver is as precious as gold, which entails similar problems for storage and handling of the physical form. These problems can be solved by handling silver through an ETF, whose physical form is protected and valued.
ETFs could be overpriced or underpriced, but the security it gives for trading such materials makes them a favourite for many retail traders. And also, it has a low expense ratio.
But this trend could take time to catch up for two factors. One, gold is the most trusted commodity for investment in the market.
The reason forms the second factor. Unlike gold price, which is determined by investors’ perception of strength in the dollar, and seen as a safe investment during an economic crisis, silver prices are determined differently.
In the market, it is the cheapest of all the precious metals. 50% of the silver demand comes from the electric manufacturing sector. Thus, its price depends upon the economic activity. They even have little change in price.
The performance of gold is based on the price of silver in the market, called the gold-silver ratio.
The ratio denotes the price of gold as a multiple of silver. Lower the ratio, the higher the performance of the gold, and vice versa. It narrowed recently too.
Thus, one should not see silver as an alternative to gold. Beyond equities and fixed income gold alone is a good diversifier, and silver can be added to it as an addition. Experts recommend limiting such allocation to 10-15% of the portfolio.
Another problem silver ETF will face is liquidation. Gold ETF had a similar problem, which was solved after waiting for the metal to gain sufficient liquidity or wait for the release of fund of funds. Silver can only overcome it similarly.
Follow and connect with us on Facebook, LinkedIn & Twitter
