Silver rates today: Use the mutual fund route to silver for a more diversified portfolio

To diversify your portfolio beyond the basic asset classes of stocks and debt, we have gold and real estate. Now we have another asset class, silver. While silver as an asset class has always been there, the regulator has now allowed mutual funds to offer it as an underlying. This makes the investment and redemption process transparent. We will discuss this a bit. Let us first see what is the case of investing in silver.

By comparison, the investment case for gold is more on sentimental grounds, such as a safe haven when stocks or bonds look uncertain, and purchases by central banks to invest their reserves. Gold in itself is not productive; application in industry is limited and use as jewelry is mostly confined to India. Money, on the other hand, has multiple uses aside from sentimental investment value.

To get an idea of ​​the quarters where the demand for silver is coming from, according to the World Silver Survey 2021, it is 35% industrial investment, 34% investment, i.e. funds exchange-traded (ETFs worldwide) and physical investments, 16% 100 jewelry, 9% photovoltaics, 4% silverware and 2% photography. According to silverinstitute.org, from 2014 to 2018, the global demand for silver was slightly lower than the supply. In 2019 and 2020, demand exceeded supply, and it is expected that in 2021, demand will exceed supply. Global silver demand has been growing steadily since 2019 and silver demand is expected to increase by 15% year-on-year, while supply is expected to increase by 8% year-on-year. the other.

History shows us that in the upswings of the equity market, stocks outperform bullion, i.e. gold and silver. In phases of stock market consolidation, bullion does better. In bearish phases, bullion obviously outperforms. It has also been proven, through the analysis of historical portfolio data, that a portfolio with appropriate diversification towards equities, fixed income securities and bullion leads to better risk-adjusted returns. In this case, risk refers to market volatility, and risk-adjusted return is measured by the Sharpe ratio, which takes returns over risk-free return and divides it by volatility.

Net-net, if your portfolio has a judicious allocation to equities, fixed income securities and bullion (gold and silver), you obtain optimal returns over a long period, with relatively lower volatility. Additionally, commodities, including bullion, can serve as an inflation hedge because their prices are closely tied to general price levels in the economy. Silver investments can also make you benefit from the depreciation of the rupee, like gold, because the world price level (in dollars) is converted into rupees and the weakening of the national currency adds to the price level in India .

How do you execute your investments? For gold, there are multiple avenues outside of physical gold – mutual funds, gold sovereign bonds, some apps that offer online investments, etc. In silver, until now, the option was physical. Now that MFs have been allowed to offer silver as an underlying asset, you have the ability to gain exposure through an avenue that offers you any size note – you can invest a large or a small sum, you can make a systematic investment plan (SIP), you can redeem at any time and you can run it yourself (direct plan) or through a mutual fund distributor (MFD) ).

There are several new fund offerings (NFOs). Take the case of ICICI Prudential Mutual Fund. ICICI Prudential Silver ETF (exchange traded fund) will have silver as its underlying, the units will be listed on the stock exchange and you can buy and sell on the stock exchange, similar to buying and selling stocks. However, there is a condition for this: you must have a demat account and a trading account with a stockbroker. Not a big ask, as it can be done online these days.

However, for people who don’t know how to execute this or who prefer the usual route of buy/redemption with the AMC, there is ICICI Prudential Silver ETF Fund of Funds. This fund will invest in units of the Silver ETF, and this will be the only investment in this fund. The advantage is that you don’t need a demat account or need to go through a stockbroker like in the ETF. You can make your redemptions with the AMC and the proceeds will come in the usual course.

Dolores W. Simon