Let's explore the case of silver NFOs and if they are worth investing in
10-Aug-2022 •Chirag Madia
DSP Investment Managers recently announced the launch of DSP Silver ETF (exchange-traded fund), while other players like Mirae Asset, Axis Mutual Fund and Kotak Mutual Fund have filed offer documents with the market regulator for silver ETFs. Going forward in August, even HDFC Mutual Fund is planning to launch its silver ETF.
There has been a sudden rush from the fund houses to launch silver ETFs to complete their product offerings. Asset management companies are betting on higher demand due to their application in the new age tech, among many other use cases like photovoltaic cells (solar) and as the main electrical connector material in battery packs and control modules of electric vehicles (EVs).
Securities and Exchange Board of India (SEBI) allowed fund houses to launch silver ETFs in November last year. Earlier, only gold ETFs were allowed to be launched by the fund houses.
ETFs can be an easy way for investors to invest in silver as they don't have to worry about their purity and storage. Anil Ghelani, Head - Passive Investments & Products, DSP Investment Managers, says the increasing demand for silver in industries, newer technologies, a shift to renewable sources of energy, and the safe-haven demand can also act as favourable tailwinds for the metal.
However, the funds which were launched with much fanfare in the last few months have seen weak returns. In the last three months on average, silver ETFs have given negative returns of around 7.5 per cent. Even in the last six months, the returns have been in red.
Value Research has never been an advocate of investing in commodities such as gold and silver. Unlike equity or bonds or deposits, the money that you invest in these asset classes does not contribute to economic growth.
Gold, for instance, is, at best, a hedge against sharp market corrections. Empirical evidence clearly proves that whenever equity markets crash, gold does well. Therefore, at best, it can be considered by a risk-averse investor mainly to cushion the downside of the equity investments. But certainly not as a wealth-generating asset.
In the last ten years, gold has given an average return of just over 5 per cent, while silver is much worse off with a meagre 0.6 per cent returns. Even safe varieties of debt funds like liquid and overnight funds have given returns in the range of 6-6.5 per cent in the last decade.
Therefore, investors are better off investing in equity funds. We don't think commodities like gold and silver add a meaningful advantage to the investor's portfolio.