Aditya Birla Sun Life Silver ETF and Aditya Birla Sun Life Silver ETF FoF: Is It Worth Investing in Silver as an Asset Class?

Jan 15, 2022

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Over the past decade, the demand for Silver has been driven by industrial usage, renewable energy, and investment instruments. Silver has provided reasonably consistent returns through all the phases of the economy when compared with other asset classes. It provides a natural hedge to investors during bear phases and is receptive to market movements during bull phases. This makes Silver a very desirable option for portfolio diversification. Silver-backed ETFs have been lately introduced in India as a new investment option for investors.

Properties like malleability, ductility, reflectiveness, noble nature, thermal & electrical conductivity have made Silver useful & valuable over age and time. In the coming years, India's commitment to sustainable energy will gradually raise demand for silver, with EVs and batteries seeing a compounding demand. The outlook for silver is bright due to emerging trends in demand.

In November 2021, SEBI announced operating norms for the introduction of silver ETFs, as per which, these ETFs have to invest not less than 95% of their assets in silver and silver-related devices. Accordingly, many fund houses have been aiming to launch silver ETFs, while ICICI Prudential Mutual Fund & Nippon India Mutual Fund have recently launched India's first Silver ETF.

Joining the band wagon, Aditya Birla Sun Life Mutual Fund has come up with Aditya Birla Sun Life Silver ETF and Aditya Birla Sun Life Silver ETF Fund of Fund. The fund house stated, "We are offering silver in both - ETF and Fund of Fund - formats for investors and partners to participate in their choice of vehicles. The reason behind the launch of the FoF together with the ETF is that those that do not have a demat account may take part in this asset class by the FoF option. Silver is one of the most versatile metal commodities that have strong (household) consumption demand, investment demand, and now an ever-increasing industrial demand."

On the launch of these funds, Mr Abhishek Singhal, Head - Passive & Alternative Strategies at Aditya Birla Sun Life Mutual Fund, said, "Indians have traditionally been large investors in silver through festive and celebratory demand for coins, figurines, ornaments, and silverware. Global demand for EVs, batteries, and solar energy will also drive industrial demand for silver. With a large demand-supply mismatch, silver could surprise the market in terms of asset class performances."

Table 1: Details of Aditya Birla Sun Life Silver ETF

Type An open-ended exchange traded fund tracking the physical price of Silver Category Exchange-traded fund
Investment Objective The investment objective of the scheme is to generate returns that are in line with the performance of physical silver in domestic prices, subject to tracking error. The Scheme does not guarantee/indicate any returns. There can be no assurance that the schemes' objectives will be achieved.
Min. Investment Rs 500 and in multiples of Re 1/- thereafter. Face Value Rs 10/- per unit
Entry Load Not Applicable Exit Load Nil
Fund Manager
  • Mr Lovelish Solanki
  • Mr Kedarnath Mirajkar
Benchmark Index Price of silver (based on LBMA Silver daily spot-fixing price)
Issue Opens January 13, 2022 Issue Closes January 27, 2022
(Source: Scheme Information Document)
 

The investment strategy for Aditya Birla Sun Life Silver ETF is as follows:

Aditya Birla Sun Life Silver ETF will be managed passively with investments in physical silver of prescribed quantity and quality (fineness) and endeavour to track the spot price of silver as derived from the LBMA (London Bullion Market Association) AM fixing prices. As per the SEBI rules, all Silver ETFs must hold silver having 99.9% purity.

The Scheme will invest at least 95% of its total assets in silver or silver-related instruments, i.e., Exchange Traded Commodity Derivatives (ETCDs) that have silver as an underlying asset. The exposure to silver ETCDs will not exceed 10% of the Scheme's net asset value (NAV), and it may hold up to 5% of the total assets in Debt or money market securities.

The investment strategy would revolve around reducing the tracking error to the least possible extent. The Scheme may also invest in cash and debt/ money market instruments in compliance with regulations to meet liquidity and expense requirements.

Under normal circumstances, the asset allocation of the scheme will be as follows:

Table 2: Asset Allocation for Aditya Birla Sun Life Silver ETF

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Silver and Silver related Instruments 95 100 Medium
Debt & Money market instruments (including Cash and Cash Equivalent) 0 5 Low to Medium
(Source: Scheme Information Document)
 

About LBMA (London Bullion Market Association)

The London Bullion Market Association is the international trade association representing the global OTC (Over the Counter) bullion market for precious metals such as gold and silver. LBMA is associated with miners, investors, fabricators, ETFs, refiners, manufacturers, consumers, and central banks from around the world. It serves as a point of contact for regulators, investors, and clients, and, most importantly, it is the voice of the global precious metals market.

Table 3: Details of Aditya Birla Sun Life Silver ETF FoF

Type An open-ended fund of fund scheme investing in the units of Aditya Birla Sun Life Silver ETF Category Fund of Fund
Investment Objective The investment objective of the scheme is to provide returns similar to the returns generated by Aditya Birla Sun Life Silver ETF. The Scheme does not guarantee/indicate any returns. There can be no assurance that the objective of the scheme will be achieved.
Min. Investment Rs 100 and in multiples of Re 1/- thereafter. Additional Purchase Rs 100 and in multiples of Re 1/- thereafter. Face Value Rs 10/- per unit
Plans
  • Direct
  • Regular
Options
  • Growth
  • Income Distribution cum Capital Withdrawal (IDCW)
Entry Load Not Applicable Exit Load
  • For redemption/switch-out of units on or before 30 days from the date of allotment: 0.5% of applicable NAV.
  • For redemption/switch-out of units after 30 days from the date of allotment: NIL.
Fund Manager
  • Mr Lovelish Solanki
  • Mr Kedarnath Mirajkar
Benchmark Index Price of silver (based on LBMA Silver daily spot fixing price)
Issue Opens January 13, 2022 Issue Closes January 27, 2022
(Source: Scheme Information Document)
 

The investment strategy for Aditya Birla Sun Life Silver ETF FoF is as follows:

Aditya Birla Sun Life Silver ETF FoF will predominantly invest in Aditya Birla Sun Life Silver ETF units. The Scheme's investment objective is to mirror the underlying scheme's performance and provide returns that correspond with the returns generated by Aditya Birla Sun Life Silver ETF.

Accordingly, the Scheme may buy/sell the units of Aditya Birla Sun Life Silver ETF either directly with the Fund or through the secondary market on the Stock Exchange(s). A small portion of the net assets may be invested in Debt and money market instruments as permitted by SEBI / RBI, including call money market or Tri-party Repo on Government securities or treasury bills or repo, to meet the liquidity requirements of the Scheme. The Scheme may also hold cash from time to time.

The fund managers will monitor the tracking error of the Scheme on an ongoing basis and seek to minimize it. The deviation from the underlying Aditya Birla Sun Life Silver ETF as specified above shall mainly be on account of the receipt of cash flows, which takes 5 days given the existing operational procedure.

Under normal circumstances, the asset allocation will be as under:

Table 4: Asset Allocation for Aditya Birla Sun Life Silver ETF FoF

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Units of Aditya Birla Sun Life Silver ETF 95 100 Medium
Debt & Money market instruments (including Cash and Cash Equivalent) 0 5 Low to Medium
(Source: Scheme Information Document)
 

Who will manage Aditya Birla Sun Life Silver ETF and Aditya Birla Sun Life Silver ETF FoF?

Mr Lovelish Solanki & Mr Kedarnath Mirajkar (for ETCDs) would be the designated Fund Managers of the Scheme.

Mr Lovelish Solanki holds MMS (Finance) and BMS (Finance) degrees and has an overall experience of over 10 years in Trading and Dealing. Prior to joining Aditya Birla Sun Life AMC Limited, he was Equity /Equity Derivatives - Trader at Union KBC Asset Management Co. Ltd. since February 2011. Before that, he worked at Edelweiss Asset Management Co. Ltd. since January 2008.

At ABSL AMC, Mr Solanki currently manages Aditya Birla Sun Life Index Fund, Aditya Birla Sun Life Arbitrage Fund, Aditya Birla Sun Life Gold ETF, Aditya Birla Sun Life Nifty ETF, Aditya Birla Sun Life Gold Fund, Aditya Birla Sun Life Balanced Advantage Fund, Aditya Birla Sun Life Equity Savings Fund, Aditya Birla Sun Life Sensex ETF, Aditya Birla Sun Life Nifty Next 50 ETF, Aditya Birla Sun Life Banking ETF, Aditya Birla Sun Life Nifty Small cap 50 Index Fund, Aditya Birla Sun Life Nifty Midcap 150 Index Fund, Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund, Aditya Birla Sun Life Nifty Healthcare ETF and Aditya Birla Sun Life Nifty IT ETF.

Mr Kedarnath Mirajkar will be managing the Exchange Traded Commodity Derivatives (ETCDs) portion of the Scheme. He has a Post Graduate Diploma in Business Management - Finance and an overall work experience of over 14 years. He has been associated with ABSLAMC since April 2010 and has worked in Operations and Risk functions. He was responsible for trade settlement, valuation of securities, and monitoring of regulatory limits.

At ABSL AMC, Mr Mirajkar currently manages Aditya Birla Sun Life Index Fund, Aditya Birla Sun Life Gold ETF, Aditya Birla Sun Life Nifty ETF, Aditya Birla Sun Life Sensex ETF, Aditya Birla Sun Life Nifty Next 50 ETF, Aditya Birla Sun Life Banking ETF, Aditya Birla Sun Life Nifty Smallcap 50 Index Fund, Aditya Birla Sun Life Nifty Midcap 150 Index Fund, Aditya Birla Sun Life Nifty 50 Equal Weight Index Fund, Aditya Birla Sun Life Nifty Healthcare ETF and Aditya Birla Sun Life Nifty IT ETF.

Fund Outlook - Aditya Birla Sun Life Silver ETF and Aditya Birla Sun Life Silver ETF FoF

Aditya Birla Sun Life Silver ETF aims to provide returns that closely correspond with the performance of physical silver in domestic prices as derived from the LBMA (London Bullion Market Association) AM fixing prices, subject to tracking errors. Similarly, Aditya Birla Sun Life Silver ETF FoF aims to simply invest in units of Aditya Birla Sun Life Silver ETF and replicate the underlying Scheme's performance.

Both the schemes offer investors a better alternative to benefit from appreciation in prices of silver compared to physical silver because it provides higher liquidity and less storage costs. Silver is widely used in specialist electronics such as the new 5G technology ecosystem to make various technical parts, solar panels, satellites, electric vehicles, etc.

The industrial use of silver is increasing swiftly; however, the supply of silver fluctuates in tandem with the demand for other resources such as copper, gold, and zinc, which is influenced by the industrial manufacturing outlook. The history of silver prices illustrates that the commodity appreciates in value as inflation rises. It provides a hedge to investors against inflation; it has a low correlation with other asset classes and can protect against loss in purchasing power.

Though silver is seen as a low-cost replacement for gold, it is important to note that silver is highly volatile in nature as compared to gold. In case of an unforeseeable event, the probability of its impact on prices of silver is higher than that of gold prices. The emergence of the new omicron variant and rise in cases and the US Federal Reserve's plans of tightening their monetary policy are expected to keep the commodity market volatile. However, rising industrial demand can work in favour of silver prices.

Thus, these schemes are suitable for investors with a moderately high-risk appetite and longer investment horizon to benefit from the future potential of silver. Before investing, ensure your investment objectives align with the respective mutual fund scheme. Aditya Birla Sun Life Silver ETF FoF can benefit investors from investing gradually in the Aditya Birla Sun Life Silver ETF through the SIP mode.

 

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Warm Regards,
Mitali Dhoke
Jr. Research Analyst

 

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