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This Diwali, silver joins gold in ETF mix as precious metals race

Silver exchange-traded funds started in India only this year. However, silver prices don’t move the way gold prices do and so fund houses have started combining the two metals in a single scheme.

This Diwali, silver joins gold in ETF mix as precious metals race
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This Diwali, silver joins gold in ETF mix as precious metals race

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Silver exchange-traded funds started in India only this year. However, silver prices don't move the way gold prices do and so fund houses have started combining the two metals in a single scheme.

Come Diwali, it's not just gold that attracts the investor's attention. Silver is slowly gaining momentum in Indian portfolios, thanks to the launch of silver exchange-traded funds (ETF). Motilal Oswal Mutual Fund closed its Motilal Oswal Gold & Silver ETFs Fund of Funds for initial subscription on October 7.

HDFC Mutual Fund, India's third-largest with assets worth Rs 4.35 lakh crore, just opened the HDFC Silver ETF Fund of Fund. The offering closes on October 21.

With more fund houses expected to follow, here's a look at silver's potential as an investment. Silver is one of the important precious metal investments for savvy, high net worth individuals. However, not many retail investors queue up to invest in silver because it was not easily accessible.

Then, there's the problem of storage. The metal is bulky and beyond a point, it cannot be kept at home safely. Investing in silver futures involves leverage and continuous monitoring, which make it unattractive.

However, the Securities and Exchange Board of India last year allowed the launch of exchange traded funds investing in silver, which were launched in January 2022. This has made silver available to small investors, with a minimum investment requirement of only Rs 60 – one unit of an ETF trades at less than Rs 60.

First things first: Just because there is a new option in the market, it doesn't mean one should rush into it. Gold ETFs have been around for more than a decade. Gold as an asset class has exhibited low correlation with Indian stocks. It has outperformed in difficult times. Gold has emerged strong as a store of value many times in history and hence is an effective hedge against inflation.

When volatility increases in the financial markets, gold offers support to your investment, making it your portfolio's insurance in difficult times. Gold held through financial assets such as gold ETF units can be sold quickly as needed.

Silver, unlike gold, is an industrial metal. It is estimated that more than 50 percent of the demand for silver comes from industrial usage. Emerging sectors such as electronic gadgets, solar energy, and batteries use silver as a key input. As demand for smartphones, electronic gadgets and electric cars goes up, demand for silver is expected to grow. Rising demand and constrained supply make a perfect recipe for silver prices to advance.

Dwaipayan Bhattacharjee
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