Silver prices continue to rise. Due to huge demand, it crossed the $50 mark for the first time on October 9 in the global markets. Whereas within the country the prices reached Rs 1.63 lakh per kg. Due to huge increase in demand, people who were staying away from silver till now are now investing in silver exchange traded funds (ETFs). This is because silver ETFs are currently trading at a high premium.
A silver ETF is a fund that trades on a stock exchange and invests in the physical form of silver or silver-related instruments. ETF units are bought and sold like stocks, and their value fluctuates based on the price of silver.
Apoorva Sheth, Head of Market Perspectives and Research at SAMCO Securities, says, “Major ETFs like SBI Silver, HDFC Silver and Axis Silver on NSE have increased by 9-13 per cent. They are trading well above their Net Asset Value (NAV). On one hand, ETFs are seeing a rise, on the other hand, the December futures price of silver on MCX is Has fallen by 0.6 percent. “This shows that retail enthusiasm driven by emotions, not fundamentals, is driving this race.”
This boom may be short term, but investors are not making any difference.
This is a good example of FOMO i.e. Fear of Missing Out buying. According to Sheth, investors do not want to lose the opportunity, so they are investing in silver ETFs. Whereas the spot market is indicating that the rise is short term. But investors are trying to ignore this and capitalize on the opportunity.
During bullish bullish periods, when physical supply is tight and market makers have a difficult time acquiring silver, ETFs trade at premiums. This shows a temporary imbalance in demand-supply. It is not necessary to trade at ETF premium for long term.
Due to increasing demand, Kotak Mutual Fund on October 9 temporarily suspended lump sum investments in its Kotak Silver ETF Fund of Funds. Nilesh Shah, managing director of Kotak AMC, called it a prudent step to protect the interests of investors. However, SIPs and redemptions continue without any interruption. Kotak MF has said that it will reopen for new subscriptions once the premiums are stabilised.
This is not the best time to invest in ETF
Sheth has advised investors to be patient. According to him, “This is not the best time to invest in ETFs trading at premium. Wait for the prices to come down or the NAV to move in sync with the market. The long term position in silver remains strong.” Kotak Mutual Fund has reaffirmed its long term bullish outlook on silver.