DSP Mutual Fund introduced a NFO (new fund offer) called DSP Silver ETF (exchange-traded fund), which will invest in silver and silver-related instruments.
The new fund offer for the Silver ETF opened for subscription on 1 August and will remain open till 12 August. This new ETF offers investors an easier way to buy or sell silver compared to the physical version with the freedom to trade easily.
In November 2021, after the SEBI allowed the launch of silver ETFs, three mutual fund houses introduced silver ETFs so far this year - ICICI Prudential AMC, Nippon India AMC, Aditya Birla Sun Life AMC and the newly launched DSP silver ETF became the fourth player.
Before we proceed, let us first deconstruct the concept of silver exchange-traded funds.
Silver Exchange Traded Funds
Silver has various industrial applications in addition to being a valuable metal. It is in high demand in the industries of manufacturing, investment, and jewellery. More than half of silver is used in heavy industry and high technology, according to the world silver survey study.
A basket of assets that tracks an underlying index is known as an exchange-traded fund (ETF) and exchange-traded funds that monitor the price of silver are known as silver exchange-traded funds.
“An investment in DSP Silver ETF is suitable for investors looking to diversify, or for experienced investors or those with access to expert financial advice," said Anil Ghelani, CFA, Head – Passive Investments & Products, DSP Investment Managers.
According to the press release, silver offers other advantages to investors as well. It aims to hedge against a standard ‘equity-debt portfolio’ due to its low correlation with equity and negative correlation with debt.
- Silver can be a good diversifier in volatile times since commodity price movements have a low correlation with equities.
- Far easier to 'keep' or 'sell' this version of silver when compared to the physical version, with the freedom to trade actively with ease.
- Silver, as a commodity, has delivered around 12 percent returns on a 5-year rolling basis, as per fund house.
- Around 50 percent of the world's silver is consumed by electronics, auto, power, pharma and many other industries but the supply & availability for recycling is limited. As the world shifts to renewable & cleaner energy resources, there is potential for demand to go up since silver is a crucial raw material.
- In silver ETF format, investors can buy this precious metal with just Rs. 5000, instead of spending a lot on expensive jewellery items, according to the press release.
However, investing in silver is a high-risk strategy and is more suited for experienced investors who understand precious metals or commodities cycles. Investors must be prepared to face short-term fluctuations and stay resilient through such times, the fund house added.