Fund houses line up silver ETFS

Aditya Birla Sun Life Mutual Fund (MF), Nippon Indian MF, and Mirae Asset have all filed offer documents with the Securities and Exchange Board of India (Sebi) to launch silver exchange-traded funds (ETFS).

Late last month, the markets regulator issued the operational framework to launch this product.

Market players believe that like Gold ETFS, silver passive funds, too, have the potential to become popular here. The objective of such schemes is to generate returns that are in line with the performance of physical silver in domestic markets. Sebi laid down several norms for asset management companies that wished to launch silver ETFS. It stated that such ETFS shall be benchmarked against the price of silver (based on LBMA Silver daily spot fixing price). To get sufficient liquidity in the Silver ETFS, the regulator said units of silver ETFS shall be listed on the stock exchanges.

“The AMC shall appoint Authorized Participants (APS)/ Market Makers (MMS) to provide liquidity for the units of Silver ETFS in the secondary market on an ongoing basis,” said the Sebi circular.

Along with the disclosure of tracking error, silver ETF schemes shall also disclose the tracking difference (the difference of returns between physical silver and the ETF), on the AMC’S website on a monthly basis for tenures of one year, three years, five years and 10 years and since the date of allotment of units.

Sebi also said that for commoditybased funds, a dedicated fund manager with relevant skill and experience in commodities market, including commodity derivatives market, shall be appointed to manage the fund. “Sebi has proposed the appointment of a dedicated fund manager for commodity-based funds like gold and silver ETFS. We believe that since these products are passively managed there isn’t a need for a dedicated fund manager or to put it aptly the list of funds should not be restrictive to commodity funds only for that fund manager,” said Chirag Mehta, senior fund manager – alternative investments, Quantum Mutual Fund.

Despite Indians’ enthusiasm for commodities like gold and silver, returns generated by silver in the last 10 year have been poor.