Make Use Of The Mutual Fund Route To Silver For A More Diversified Portfolio


While silver as an asset class has always been there, the regulator has now allowed mutual funds to offer this as an underlying. This makes the process of investment and redemption seamless.

For diversifying your portfolio beyond the staple equity and debt asset classes, we have gold and real estate. Now we have another asset class, silver. While silver as an asset class has always been there, the regulator has now allowed mutual funds to offer this as an underlying. This makes the process of investment and redemption seamless. We will discuss that in a bit. First, let us see what is the case for investment in silver.

For comparison, the investment case for gold is more on sentimental grounds, as a safe haven when equity or bonds look uncertain, and purchases by central banks for investing their reserves. Gold per se is not productive; application in industry is limited and usage as jewellery is mostly confined to India. Silver, on the other hand, has multiple uses, apart from a sentimental investment value.

To get a sense of the quarters from which demand for silver emanate, according to the World Silver Survey 2021, it is 35 per cent industrial, 34 per cent investments i.e. exchange traded funds (ETFs all over the world) and physical investments, 16 per cent jewellery, 9 per cent photovoltaics, 4 per cent silverware and 2 per cent photography. According to, from 2014 to 2018, global demand for silver was marginally lower than supply. In 2019 and 2020, demand outstripped supply, and it is projected that in 2021, demand will be higher than supply. Global demand for silver has been increasing steadily since 2019 and it is expected that demand for silver will increase 15 per cent year-on-year whereas supply would increase 8 per cent year-on-year.

History shows us that in the bull phases of the equity market, equity outperforms bullion, i.e., gold and silver. In the consolidation phases of the equity market, bullion does better. In the bear phases, bullion obviously outperforms. It has also been proven, through historical portfolio data analysis, that a portfolio with proper diversification to equity, fixed income and bullion leads to better risk-adjusted returns. Risk in this case refers to market volatility, and risk-adjusted return is measured through Sharpe Ratio, which takes returns over the risk-free return and divides that by volatility.

Net-net, if your portfolio has a judicious allocation to equity, fixed income and bullion (gold and silver), you get optimum returns over a long period of time, with relatively lower volatility. Moreover, commodities, including bullion, can act as a hedge against inflation as their prices are highly linked to general price levels in the economy. Investments in silver can also give you the benefit of rupee depreciation, like gold, as the global (in dollar) price level is converted to rupee and the weakening of the domestic currency adds to the price level in India.

How do you execute your investments? For gold, there are multiple avenues apart from physical gold — mutual funds, sovereign gold bonds, certain apps offering online investments, etc. In silver, so far, the option was physical. Now that MFs have been allowed to offer silver as the underlying asset, you have the option to take exposure through an avenue that offers you any ticket size — you can invest a big chunk or a small amount, you can do a systematic investment plan (SIP), you can redeem anytime and you can execute yourself (direct plan) or through a mutual fund distributor (MFD).

There are multiple new fund offers (NFOs). Let us take the case of ICICI Prudential Mutual Fund. ICICI Prudential Silver ETF (exchange traded fund) will have silver as the underlying, the units will be listed on the stock exchange, and you can buy and sell at the exchange, similar to buying and selling equity stocks. However, there is one requirement for doing this: you have to have a demat account and a trading account with a stockbroker. Not a big ask, as these can be done online nowadays.

However, for people who are not savvy to execute this or prefer the usual route of purchase from/redemption with the AMC, there is ICICI Prudential Silver ETF Fund of Funds. This fund will invest in units of the silver ETF, and that will be the only investment in this fund. The advantage is, you do not require a demat account or do not need to go through a stockbroker like in the ETF. You can put in your redemptions with the AMC and the proceeds will come in the usual course.


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