Why Add Silver to Your Portfolio?

Are you seeking to diversify your portfolio into precious metals? Are you a market-savvy investor looking to profit from economic growth? You could add Silver to your portfolio through Silver ETFs. It is an open-ended mutual fund which has Silver as the underlying asset. Should you add Silver to your portfolio?

What are Silver ETFs?

Silver Exchange Traded Funds (ETFs) invest a minimum of 95% of their assets in silver and silver-related products. Moreover, the remaining 5% of the assets are held in debt and money market instruments. The Silver ETF assets are stored under the custody of a SEBI-registered custodian. 

According to SEBI rules, Silver ETFs must invest only in Silver and silver-related instruments according to the fund’s objectives. Moreover, Silver ETFs are listed on recognised stock exchanges in India. Silver ETFs are benchmarked against silver prices based on London Bullion Market Association (LBMA) Silver daily spot-fixing prices. 

According to SEBI rules, the Total Expense Ratio (TER) of Silver ETFs, including investment and advisory fees, must not exceed 1% of the daily net assets. It is the total cost of operating the mutual fund.

Moreover, to avoid deviation of Silver ETFs portfolio from the underlying asset class (Silver), AMCs try to keep the tracking error within 2%. It is the difference between the Silver ETF returns and those of the asset (Silver) it tracks.

Why add Silver to your portfolio?

You could invest in Silver ETFs if you are a market-savvy investor with higher risk tolerance. It helps to have around 10%-15% of your overall portfolio in Gold and Silver. For example, you could have 7%-9% in gold holdings and 1%-3% in Silver through Silver ETFs. However, you may have a higher holding in Silver ETFs if you are a market-savvy investor with higher risk tolerance. 

Silver has industrial applications in batteries, semiconductors, electronic gadgets, nuclear reactors, LED bulbs, etc. Moreover, it has applications in new age industries like 5G, electric vehicles, solar etc. 

Market experts recommend that you have gold in your portfolio. It serves as a hedge against inflation, unlike Silver which may do well when the economy performs. Some AMCs have launched gold and silver ETFs exposed to the precious metals. It aims to give investors the proper allocation of gold and Silver. The idea is that gold protects your portfolio during an economic downturn, and Silver may do well during a stock market rally. 

You may consider Silver a tactical bet against inflation over the long run. It is more correlated to the stock market than gold as it has many industrial applications. You may use Silver to bet on economic recovery by purchasing and selling the precious metal at the correct price points.  

The Russian invasion of Ukraine and China-Taiwan tensions have kept commodities volatile. However, Silver is more volatile than gold, and you may use gold as a hedge against inflation. Finally, invest in Silver if you have a high-risk appetite and a longer time horizon to diversify your portfolio. 

For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in