ICICI Pru AMC, Nippon MF plan to launch silver ETF

At least two large fund houses, Nippon India Mutual Fund and ICICI Prudential (ICICI Pru) asset management company (AMC), are working on launching an exchange traded fund (ETF) with silver as the underlying asset class.

There are options for investing in gold — digital, physical gold, ETF, sovereign bonds. For silver, though, investors have only the physical metal. There were some attempts in the past, after success of gold ETFS, to launch one in silver, as also for crude oil. However, due to lack of legal clarity, and an issue with separate regulators for commodities and stock exchanges, an ETF for assets other than gold could not be introduced.

Now, however, both commodities and stock exchanges are now regulated by the Securities and Exchange Board of India (Sebi), and all exchanges are universal ones — any one can permit a fund house for a silver ETF or for other commodities. Sources say a few large fund houses are already working on proposals for launching an ETF for silver, since they have since been formally allowed to trade even in the commodities derivatives segment.

“MFS are waiting for a custodian to be ready for trading on commodity exchanges,” said a source. A Nippon India MF spokesperson said, “Commodities are an important asset class for us. The Nippon India ETF Gold BEES was the first Gold ETF in India. As and when the regulations permit, we will be interested in expanding our product suite of commodity-linked ETFS.”

In 2010-11, Sebi allowed launch of a silver ETF and the National Stock Exchange had issued a circular for this. However, the then Forward Markets Commission, regulator for commodity derivatives, had objected. Sebi and NSE both withdrew their permissions and a silver ETF could not be launched.

A gold ETF was first launched in 2007, by Benchmark Assets Management, now under Nippon.

ICICI Pru AMC is considering a big plan for the commodities segment. A silver ETF is on their priority list.

All fund houses are waiting for more custodians to start offering their services for commodities. As of now, only one that is Deutsche Bank’s Securities Services has been granted approval by the Sebi to offer custodian services to institutional players in commodity segment. To begin with, the Sebi approval permits commodity custody services in gold, crude & natural gas and commodity indices, said Deursche Bank in a statement. The custodian will serve MFS, alternative investment funds in commodity segment. The exchanges are said to be pushing a few banks to launch custodian services for commodities, which would also facilitate MFS’ participation in derivatives, apart from ETFS.

Chintan Haria, product head at ICICI AMC, said: “It is encouraging that the regulator has allowed MFS to participate in the commodities segment. We are exploring the possibility of introducing products in this segment, subject to regulatory approvals.”

In 2018, according to data from Metal Focus, an international consultancy in precious metals, all exchange traded products held a total of 19,840 tonnes of silver. Physical investment in 2018 was 5,155 tonnes; in India, it was 1,680 tonnes. As of 2018, it said, Indian investors had bought 10,646 tonnes over five years