Mutual funds are gearing up to resume fresh investments in their silver fund of funds (FoFs) after the recent fall in prices wiping out the premium in silver exchange traded funds (ETFs).
The silver FoF is just a vehicle for investors without a demat account to invest in ETFs. Last week, large mutual funds including SBI MF, Tata MF, Birla MF, Kotak Mahindra MF and UTI MF suspended fresh investment in their silver FoFs. The ETF in which these schemes invest were trading at a premium over the prevailing spot silver prices due to short supply in the physical market on the back of heavy demand.
Aditya Birla MF has already announced the reopening of investment in its silver ETF from Thursday.
“Due to changes in market conditions, silver is at discount relative to its international prices which has led to Silver ETFs trading at discounts on exchanges,” said Aditya Birla Sun Life MF.
In view of the above, fresh subscription and additional purchases in Aditya Birla Sun Life Silver ETF FoF investing in the units of Aditya Birla Sun Life Silver ETF will be accepted from Thursday, it added.
Silver prices down
With the silver prices easing, other MFs are also expected to start accepting investment in their silver FoF soon, said a MF distributor.
Silver prices have crashed after hitting a historic high last Tuesday. The white metal prices have plunged 30 per cent or ₹ 54,193 to ₹123,907 per kg on Wednesday against ₹ 178,100 logged on October 14. The metal was quoted at $5 an ounce premium in the domestic market due to huge shortage.
In the international spot market, silver came down below $50 per ounce mark after the metal rallied over 60 per cent year to date.
Silver ETFs fall
Tracking the trend, silver ETFs have fallen 16-18 per cent in the same period and wiped out the premium being quoted in the market.
Nippon India Silver ETF, the largest in the category, has dipped 17 per cent on Tuesday to ₹145 from ₹174 on October 14. Similarly, Kotak Silver ETF on NSE was down 18 per cent at ₹147 on Tuesday from a high of ₹179, while SBI Silver ETF dropped to ₹148 from high of ₹180 registered on October 14.
Demand for coins
Avinash Gupta, Vice-Chairman, GJC, said the demand for silver coins in this Dhanteras increased 35-40 per cent, especially in tier-II and -III cities, where buyers are opting for budget-friendly investments and ceremonial gifting.
Jewellers in smaller towns are reporting stronger growth than metros, he said.
Ponmudi R, CEO, Enrich Money, said recent large shipments have helped ease the shortage but the relief is likely to be short-lived.
Silver mine output has not increased meaningfully, while industrial consumption — particularly from the solar and electric vehicle sectors — continues to rise steadily, he said.
Though silver prices may fall in the short run, he added the broader outlook remains bullish and any dip below $45 an ounce should be an opportunity to buy with $40 emerging as a strong support zone.