Silver ETFs gain modest traction in first year with AUM of Rs 1,500 crore

Advisors say more money will trickle in once silver ETFs build a solid returns chart

Silver exchange-traded funds (ETFs) have gained modest traction in their first year, with assets under management (AUM) of around Rs 1,500 crore at the end of November. According to investment advisors, such products have a place in asset allocation and flows will pick up once they register a good showing on the returns chart.

ICICI Prudential, Aditya Birla Sun Life, and Nippon India were among the first fund houses to launch silver ETFs in January-February 2021. There are now seven such offerings with Axis MF, HDFC MF, Kotak Mahindra AMC, and DSP Investment Managers also entering the space. The number of folios (investment accounts) stood at 69,000 at the end of November, or 1.5 per cent of total folios in gold ETFs.

 “Silver ETFs are an interesting addition to the list of MF offerings. But I am not recommending them to clients as yet because they’re still new and there are better opportunities elsewhere,” said Tarun Birani, founder of TBNG Capital Advisors.

 “Investors generally go by past returns. Silver ETFs will catch investors' fancy once they deliver exceptional returns. I am not recommending any silver ETF as I prefer low allocation towards commodities and gold is the first preference there," said Dev Ashish, a Lucknow-based investment advisor.

 According to the aforementioned fund houses, the product has received a good response considering that it is a new offering. “Despite 2022 being a choppy year, investors added to their silver holdings which is an encouraging trend. This shows that Indian investors have matured and are adding commodities to their portfolio as part of their overall asset allocation requirements,” said Chintan Haria, head-product development and strategy, ICICI Prudential AMC.

Brokerages have an upside bias for silver in 2023 as they see strong demand for the metal amid the global green energy push and rising industrial demand.

"Silver prices are likely to move higher, outperforming gold as the silver market is likely to remain in deficit for a second consecutive year. Demand in the industrial sector is likely to grow amid electrification of vehicles, 5G technology, and commitment to green infrastructure," ICICI Direct said in a report.

“The global silver market is forecast to record a second consecutive deficit this year. At 194 mn ounces, this will be a multi-decade high and four times the level seen in 2021. Going forward, China’s reopening, Fed stance, and global growth are going to be the key drivers of the silver prices," Kotak Securities said.

 Motilal Oswal Financial Services has a different stance. The brokerage expects the silver prices to correct in 2023. “We see some signs of exhaustion in both metals (gold and silver), however, these dips could be used as buying opportunities for any medium- to long-term investor…,” the brokerage said.