Benchmark AMC has filed an offer document with Sebi for a silver exchange-listed fund, the first ever in India. The fund would invest in units of overseas mutual fund schemes, including exchange-traded funds investing in silver or securities/instruments linked to silver and exchange-traded notes whose returns are linked to silver.
The fund can't invest directly in silver since Sebi's (Custodian of Securities) Regulations do not provide for custodial services in respect of silver and silver-related instruments. In fact, it was this fact that had delayed the introduction of gold ETFs in India.
Benchmark AMC's scheme is called silver BeES and each unit issued under the scheme will be equal to price of 100 grams of silver. The entry load for the fund will be 2.25 per cent during the new fund offering (NFO).
Currently, the ETF market in India is limited to gold. "Normally, those who track gold track silver too. Moreover, silver is an industrial commodity and is more volatile than gold. Consequently, traders would like to take a call on silver, if they are not into the ETF market yet," said Rajan Mehta, executive director of Benchmark mutual fund.
Silver is voluminous and, therefore, more difficult to store. So, traders would prefer to hold units in the dematerialised form.
Analysts said that the costs for storing silver are higher than those for gold. Also, Sebi's guidelines do not allow ETFs that directly invest in silver. The most widely-traded silver ETFs in the world today are Barclays silver ETF (also called iShares Silver Trust), traded on AMEX, and PowerShares DB Silver fund. Silver tracks gold in terms of returns and prices but is slightly more volatile than the yellow metal.
"Even gold ETFs have not picked up in India in a big way. However, the gold ETF is fairly liquid and can be traded on the exchange. With this product, the liquidity will be lower. Investors would rather put their money in the silver contract on MCX," said Ashok Mittal, country head-commodities for Karvy Comtrade, the commodity division of domestic broking house Karvy Stockbroking.
Currently, five AMCs have launched gold ETFs in India - Reliance AMC, Kotak Mahindra AMC, Benchmark AMC, UTI AMC and Quantum AMC.
Mehta said that the focus of the fund house would continue to be on index and quantitative funds. Benchmark AMC has already got Sebi approval for its quantitative fund, India Value and Momentum Quant Fund, that will invest in securities based on a quantitative stock selection model provided by Citigroup First Investment Management.
