ETF

Silver ETFs: White metal ETFs took a lead from gold ETFs, gave returns worth 32% in 1 year

Fri Nov 22 2024

Silver exchange-traded funds (ETFs) have demonstrated significant growth, surpassing gold ETFs in the past year. According to the latest report by  ICRA Analytics, silver ETFs have generated returns of 32.49% over the previous year, outperforming gold ETFs which only yielded 28.07%.

Historically overshadowed by gold, silver has outperformed the yellow metal with a 30% return in the past year, compared to gold's 25.5%. The top-performing silver and gold ETFs during the same period achieved returns of 24.64% and 33.13%, respectively, mirroring the performance of the physical metals.

Assets under Management (AUM) for silver ETFs have increased more than four-fold, rising to Rs 12,331 crore in October 2024 from Rs 2,844.76 crore a year earlier. This surge is attributed to a significant increase in silver sales, both in physical form and through ETFs.

Silver ETF vs Gold ETF

ICRA Analytics observed that while gold ETFs have been present in the market for a considerable amount of time, the relatively new introduction of silver ETFs in 2022 has quickly caught the attention of investors. This can be attributed to the appeal of silver ETFs being more accessible and transparent for retail investors.

The rise in popularity of silver ETFs is indicative of the growing preference among retail investors, who are drawn to the convenience and transparency offered by these investment vehicles compared to physical silver. Unlike physical silver, which poses challenges such as storage requirements and additional costs like GST, silver ETFs provide enhanced liquidity and ease of trading. Being listed on exchanges, investors are afforded the flexibility to easily buy and sell units of silver ETFs.

he total number of folios under Silver ETFs increased by nearly 215 per cent to touch 4.47 lakh in October 2024, up from 1.42 lakh in the same period last year. Net inflows grew by 24 per cent at Rs 643.10 crore in October 2024, as against Rs 518.02 crore last year. 

Ashwini Kumar, Senior Vice President and Head Market Data, ICRA Analytics, the number of Silver ETFs, which stood at 8 in April 2023, has increased to 12 in August 2024. “Silver ETFs managed to garner attention of the investors within a short period of time. It is being increasingly preferred over physical form as investing in physical silver is challenging due to storage related issues. Moreover, buying of physical silver may incur GST costs which unregistered dealers may have to pay out of pocket. Investing in silver ETFs is relatively easy compared to that of traditional methods of investment in physical silver and they have better liquidity compared to that of the physical options as they are listed on the exchange thereby allowing investors to buy and sell units easily. Lastly, price efficiency of Silver ETFs is better compared to traditional physical options."

Silver ETFs

The average returns for a 1-month, 3-month, 6-month and 1-year period were in the range of 7.57 per cent, 16.02 per cent, 20.25 per cent and 32.49 per cent, respectively.

This is in contrast to an average return of 5.32 per cent, 14.29 per cent, 1029 per cent and 28.07 per cent generated by Gold ETFs over 1-month, 3-month, 6-month and 1-year duration, respectively.

Less than 1 year Absolute returns, Greater than or Equal to 1 year Compound Annualized returns.               Returns as on October 31, 2024; source:  ICRA Analytics

Future outlook

Kumar added in the event that domestic inflationary pressures and geopolitical instability persist, there is a likelihood of an increased demand for silver. This could potentially lead to the introduction of additional Silver ETFs in the near future, as its significance in diversifying investor portfolios and managing investments becomes more pronounced.

“Silver prices are expected to remain attractive as the expectation is that the U.S. Federal Reserve will continue to cut interest rates in the coming months giving a boost to silver prices. Besides, geopolitical tensions may prompt risk-averse investors to invest in safe-haven assets like silver.  Demand for silver is expected to remain upbeat due to its usage in electronics and green technologies. Moreover, investors often prefer investment in silver for portfolio diversification and it is often seen as a hedge against inflation. This apart, cut in customs duty and change in taxation structure has made silver investment more attractive,” he added.        

Source: https://www.businesstoday.in