Unlike gold, silver has immense technical and industrial uses because it is an excellent thermal and electrical conductor. It is widely used in specialized electronics and solar panels. Its antibacterial properties also make it popular in the medical industry. Less than 10% of mined gold is used for industrial purposes, but in the case of silver the figure is 50%. These applications create a fundamental demand for silver, the intensity of which varies across different economic cycles, with demand higher during booms.
In times of economic crisis, precious metals (gold, silver) tend to retain their value, or even appreciate. This is primarily why they are so attractive as investment options, as they provide protection to a portfolio of stocks and debt and appreciate over time. The importance of silver in the industry ensures that it serves as a good diversifier in an investor’s portfolio.
So, if you are an investor whose portfolio is already exposed to gold, develop exposure to silver for its industrial applications, as the demand for this metal is likely to continue throughout economic cycles. In the meantime, there could be price disruptions due to mining issues or increased demand in industrial and manufacturing production, both of which can impact the price trajectory.
Investment exposure
While there are many ways to gain exposure to silver, in terms of your investment objective, investing in a silver ETF is a prudent choice. Let’s see why? Physical silverware in the home adds to status and gives pride of ownership. Same with silver jewelry. But it is not an investment; at best, they are intended for gifts, ornaments, and practical uses, as they have sentimental value. The other alternative is to purchase physical silver, such as bullion or coins. But then you have to think about insuring it as well as finding safe storage, such as a bank locker. This all has a cost. Additionally, during times of moving, physically moving the operation can be a tedious task.
Silver ETF
A Silver ETF is an exchange-traded fund, listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The ETF invests in physical silver with a purity of 99.9% and may also participate in exchange-traded derivatives (ETCDs) with silver as the underlying commodity. These ETF shares are held digitally in a demat account. So, one can buy, sell or trade these units easily at any time of trading hours just like stocks.
Due to the relatively high initial cost required, many investors may have difficulty purchasing a silver bar or coin. In such cases, opting for a Silver ETF may be a better solution. Indeed, Silver ETFs can be purchased in small denominations, of up to 1 unit, via the exchange, at a very low transaction cost.
If you don’t have a demat account, invest through a Silver ETF fund of funds (FoF). A FoF is like any other mutual fund in which one can initiate a lump sum investment or SIP, depending on the requirements of your portfolio.
(The author is Principal – Investment Strategy, ICICI Prudential AMC)
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
