Precious metal prices on the rise: Is now the time to invest in silver ETFs?

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In 2024, silver has surged significantly, driven by geopolitical uncertainties,  inflation, and rising hopes of US Federal Reserve rate cuts. This has made silver exchange-traded funds (ETFs) an attractive option for a broader investor base.

Reports indicate that silver funds have delivered an average return of 26.08% this year alone.

A look at 1-year return and expense ratio of some of the silver ETFs

Fund Name Return (%) Expense Ratio (%)
Nippon India Silver ETF 22.42% 0.51%
ICICI Prudential Silver ETF Invest Now 22.61% 0.4%
Kotak Silver ETF Invest Online 22.54% 0.45%
ICICI Prudential Silver ETF FoF Invest Now 22.49% 0.56%

(Source: Value Research)

Given this context, investors might consider silver ETFs as a strategic addition to their portfolios.

But is now the right time to invest in silver ETFs?

The rise of silver ETFs

Silver ETFs are designed to provide investors with direct exposure to the price movements of silver, without the need to physically purchase and store the metal.

This accessibility makes silver ETFs a popular choice among investors seeking to diversify their portfolios.

Chintan Haria, Principal of Investment Strategy at ICICI Prudential AMC, highlights the unique appeal of silver: “Investors can consider adding silver to their portfolios for diversification purposes, providing a buffer to an equity-debt portfolio. Unlike gold, silver has extensive industrial applications, creating consistent demand across economic cycles.”

Several factors contribute to the strong performance:

Industrial demand

Silver’s extensive use in industries, particularly in electronics and green technologies like solar panels, ensures a steady demand, even when economic conditions fluctuate.

Investment appeal

Silver also functions as a safe haven asset, similar to gold, making it an attractive option during periods of economic uncertainty and inflation.

Finite supply

Haria points out the constraints on silver supply due to challenges in mining and refining, which can influence its price dynamics.

The finite supply, coupled with rising demand, could lead to potential price increases.

Advantages of silver ETFs

Silver ETFs offer several benefits that make them an attractive investment option:

Transparency and authenticity: Silver ETFs invest in high-purity silver and closely track its price movements.

Cost efficiency: With a low expense ratio, silver ETFs provide a cost-efficient way to manage investments, avoiding the higher costs associated with physical silver storage and insurance.

Convenience: Holding ETF units in a demat account eliminates worries about theft or physical storage.

“Investors can also access silver ETFs through a silver ETF fund of fund (FoF), which operates like any mutual fund, allowing for lump-sum or systematic investment plans (SIPs) without needing a demat account,” Haria told CNBC-TV18.com.

Market trends

Haria emphasises the value of silver in an investment portfolio: “Silver’s dual role as an industrial metal and an investment asset class makes it an attractive choice for discerning investors. Going forward, silver demand is likely to be robust.”

Market analysts agree that silver’s performance will continue to be influenced by its industrial applications and investment demand.

The evolving demand for technologies that rely on silver, combined with limited supply, suggests a positive outlook for silver ETFs.

However, investors should be aware of the inherent volatility in commodity markets.

While silver ETFs have shown strong returns, they are subject to fluctuations influenced by broader economic and industrial trends.

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