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Silver ETFs: A Shiny New Investment I Investing in Silver I Vijay Bhambwani - YouTube
Channel: Equitymaster
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hello friends this is vijay bambani here
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i'm back in this video to talk about a
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new investment opportunity that i had
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talked to you about in an earlier video
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dated 8th of october 2021
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yes i'm talking about the silver etfs
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which are now becoming a very rapid
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reality in the indian
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equity markets
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so far
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indian investors
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did not really have too much of a choice
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when it came to a boolean etf because
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you only had
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gold etfs so far
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and
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for more than a decade and a half
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at conferences and at meetings and
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ideation sessions etc i used to ask a
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lot of people at the mcx and
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nse and sebi etc as to when the silver
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etfs were going to be launched and
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nobody really had a concrete timeline
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guess what
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in october when i made that video it was
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because sebi announced the permission
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in principle to the mutual funds to
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launch the etf and now
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three mutual funds have actually gone
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ahead and applied to the sebi uh for
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these etfs and the list is led by aditya
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birla sun life
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nippon india and mirai asset here nippon
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india is going to have a silver etf as
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well as a fund of funds
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so
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what are going to be the semantics
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whether you should invest or not and
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more importantly since i practice the
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360 degree worldview of financial
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markets the why of you should invest in
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these silver etfs
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you see
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in my videos on gold i have very clearly
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given a preference to physical purchases
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in gold and now
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i'm talking about a silver etf why
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so the difference here is when you go to
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very bazaar and you try to buy and sell
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gold all right the difference between
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the buy price and the sell price if you
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go to the right guys the wholesalers and
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the reputed paydays paydays are
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traditional shops or
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wholesalers who buy and sell gold from
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you
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the difference between the bid and the
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offer
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could be as small as 120 to maybe 150
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rupees per 10 grams
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which is actually very small
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if you're paying more than this you're
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probably overpaying
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the unfortunate part about silver is
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that the difference between the buy and
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the sell price per kilo now do remember
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i'm talking about per kilo in indian
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rupees
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it could start from 1200 rupees per kilo
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and go all the way up to 2
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500 rupees a kilo depending on the
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market volatility now that's a lot of
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money lot of money
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which is why
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investing in a silver etf could actually
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make more sense because when you buy and
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sell remember your profits are not
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booked till you haven't sold and the
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money has come to your bank so when you
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buy and sell the bid and the offer price
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the buying and the selling price the
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difference of
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1200 to 2500 can actually be crippling
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and then in the physical space in silver
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you would have to pay gst which would be
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lost to you
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and an android as an unregistered dealer
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you would not if you don't have a gst
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number etc you would be paying that out
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of pocket
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in
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etfs that problem does not arise at all
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and then
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i'm going to put you through i mean i'm
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going to get you up to speed about the
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semantics of this
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investment
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how the silver etfs are going to work
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and
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what amount of your capital you should i
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ideally put in silver
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so now is this silver etf completely
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safe i think yes because just like the
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gold etfs these mutual funds will be
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required by law to appoint a custodian
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where the physical stock of silver
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will be stored equivalent to the amount
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of silver etfs that they have issued to
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the public at large so
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each and every gram each and every kilo
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of silver that you buy is backed by
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physical delivery and
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to that extent you are safe
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what will be the purity of that silver
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and in what denomination now the
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standard 30 kilo bar is what will be
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held in physical remember
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you and i as retail investors might
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prefer a one kilo bar but these guys are
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going to be holding tons and tons of
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silver so they will prefer 30 kilo bars
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in purity of 99.90
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purity
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99.90 percent purity which will confirm
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to the london bullion merchants
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association purity standards now this is
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the best kind of purity that
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silva can basically
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provide will all the money that you put
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in the silver etf be invested in
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physical silver no
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and what are the implications of all the
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money not being put in the etf now allow
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me to explain
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some amount of money
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that
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you give to the mutual funds in in the
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etf component will be put in debt paper
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debt paper means government paper bonds
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treasury bills etc ranging from 14 day
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maturity to maybe uh even longer term
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bonds why is this so as to meet
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redemption pressures if any
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if people want to pull money out of the
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silver etf they will be
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paid back by liquidating some amount of
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debt instruments and not touch that
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physical silva
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10 of the corpus
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will be set aside
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for trading in commodity derivatives now
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maybe the fund manager at some point in
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time might feel that
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silver is likely to go down now rather
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than sell physical silver and incur a
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lot of expenses and delivery charges etc
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etc
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the fund manager could simply go and
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short sell that silver in the commodity
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exchange so for that purpose either
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going long or going short 10 of that
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corpus will be set aside for trading
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now what will be the impact of
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setting aside this corpus for trading my
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experience
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with gold etfs is that one of the many
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reasons or one of the few reasons rather
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why gold etfs trade at a discount to
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physical gold is because the market says
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hey the fund manager has been given a
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certain amount of leeway to trade in
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gold commodity derivatives and it is not
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necessary that each and every
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transaction results in a profit there
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could also be a loss so let us
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assume a certain amount of money might
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be lost and therefore the nav of gold
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etfs is
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somewhat
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small lower than the physical price of
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gold but it does not mean that your
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appreciation will not be
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as good as physical gold
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that same discount will apply whenever
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the price is going up or down so if
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physical gold is going up by three
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percent remain assured your etf will
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also move almost i'm saying almost in
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lock step so either it will go up by two
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point eight two point nine percent if
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the physical price goes up by three
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percent or it might go to three point
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one percent when physical is rising by
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three percent it will be more or less in
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lockstep but i'm telling you the reason
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why there could be a small discount now
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you should not get alarmed about this
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because all the money is not invested in
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silver and therefore the market is
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basically predicting or making a leeway
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for some potential loss
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now as an investor
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will you incur any charges for investing
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in this silver etf the answer is yes
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as a first time investor investing in a
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new fund offer or nfo
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if you are investing
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rupees 10 000 or higher you will be
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paying 150 rupees as an initial charge
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for retail investors investing less than
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10 000 rupees that 150 rupees will not
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have to be paid so the smaller guys have
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been taken care of and
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it's been seen to it that they do not
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pay these charges
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now
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what will be the expense ratio
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we all as mature investors want to know
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how much of our capital
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will go away towards providing for
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fund expenses or enterprise expenses
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salaries electricity bills transport
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charges etc etc
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as per sebi
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silver etfs will not be allowed to
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charge more than one percent of the
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asset under management or a aum
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as expense ratio so it is a fairly low
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cost instrument if it had been a very
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actively traded fund which many of these
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equity
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mutual funds are because the fund
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manager keeps buying and selling a lot
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their execution cost commission taxes
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and other charges
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the expense ratio can be higher so in
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this case the expense ratio will be one
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percent
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now whether you should invest in silver
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etfs i have in the beginning of this
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video told you very categorically yes
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you should
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and you should also refer back to the
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8th of october video that i have already
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recorded for further details
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and how much money should you allocate
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to silva
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now if at all you have 100 rupees to
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invest in the market
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i think depending on your risk appetite
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you should set aside 15 to 20 percent of
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your corpus
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for bullying investment
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now assuming that you are segregating
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say 20 percent hypothetically 20 percent
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of your corpus towards bullion
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off that 20
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a minimum of 40 percent should be
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towards silver
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now let me illustrate to you in rupee
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terms supposing you have hundred rupees
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to invest
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at least
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15 to 20 rupees out of that 100 should
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go in boolean because i'm expecting
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inflation to go up from 2022 onwards now
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out of that 20 rupees you should invest
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at least eight if not higher in silver
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and the remaining in gold
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the problem with silver is that the
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prices tend to be a little more volatile
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than gold and therefore people tend to
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allocate a lower amount in silver but
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believe me silver being a poor man's
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gold i think the possibility of silver
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being a better hedge against inflation
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is
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better than gold for the simple reason
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that i have told you in my earlier
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videos silver is not only a store of
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value and a semi precious metal it is
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also an industrial metal
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you cannot have electric vehicles you
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cannot have 5g technology you cannot
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have photovoltaic cells to make solar
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power without silver so yes
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net net i think you should go ahead with
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the shiny new investment
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and i believe it will be just a couple
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of weeks before these new fund offers
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will be available for you to subscribe
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i hope you have a profitable investment
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in silver thank you for your patience
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this is vijay bambani signing off for
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now not before reminding you to click
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like on this video if you liked what you
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saw
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investors and traders by referring my
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video to your family and
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friends thank you for watching this
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video take care bye
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