Why invest in silver through ETFs?
Invest in silver ETFs for industrial diversification and value retention during economic cycles. Silver's fundamental demand, especially during turmoil, makes it a resilient investment like gold, offering a buffer to equity-debt portfolios.
While gold gets plenty of traction, is (wrongly) looked upon as the poorer cousin. Traditionally, silver has been popular among the masses in the form of jewellery, coins, bars and silverware which are gifted on auspicious occasions.Unlike gold, silver has immense technical and industrial uses as it is an excellent thermal and electrical conductor. It is widely used in specialist electronics and solar panels. Its anti-bacterial properties also make it popular in the medical industry. Less than 10% of the gold mined is used for industrial purposes, but in the case of silver the number is 50%. These applications create a fundamental demand for silver, the intensity differing over various economic cycles with higher demand during boom times.
In times of economic turmoil, precious metals (gold, silver) tend to retain their value or even appreciate. It is primarily for this reason that they are so attractive as investment options as they provide a buffer to an , as well as appreciate over time. Silver’s significance in industry ensures that it is a good diversifier in an investor’s portfolio.
So, if you are an investor who already has exposure to gold in the portfolio, build exposure to silver for its industrial applications as demand for the metal is likely to sustain across economic cycles. In the interim, there could be disruptions in prices due to mining issues or increased demand in industrial production and manufacturing, both of which can impact the price trajectory.
Investment Exposure
While there are several ways to take exposure to silver, when it comes to investment purpose, investing in a is a prudent choice. Let us consider why?Physical silverware in the house adds to status and gives one pride in ownership. Same with silver jewellery. But these are not an investment; at best they are for gifts, adornment and practical uses as there is sentimental value attached to it.
The other alternative is to buy physical silver, such as a bar or coins. But then you have to consider insuring it as well as finding safe storage, such as a bank locker. All these come at a cost. Also, during times of relocation, physically shifting the holding can be a tedious task.
Silver ETFs
A Silver is an exchange traded fund, listed on the National Stock (NSE) Exchange and Bombay Stock Exchange (BSE). The ETF invests in 99.9% purity physical silver and may also participate in Exchange Traded Commodity Derivatives (ETCDs) with silver as the underlying commodity. These ETF units are held digitally in a demat account. So, one can buy, sell or trade these units at ease during any time of the trading hours just like stocks.Due to the relatively high upfront cost required, many of the investors may find it difficult to purchase a silver bar, or a coin. In such cases, opting for a Silver ETF can be a better route. This is because, Silver ETF can be purchased in smaller denominations of as low as 1 unit through the stock exchange at very low transactional cost.
In case you do not have a demat account, invest through a Silver ETF Fund of Fund(FoF). A FoF is just like any other mutual fund wherein one can initiate lump sum or SIP investment, as per your portfolio requirements.
(The author is Principal - Investment Strategy, ICICI Prudential AMC)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
