How to Invest in Silver in India

There is very good news for investors who want to trade/invest in silver. We, in India, now can trade or invest in silver just like equities. National Spot Exchange (NSEL) has introduced E-series products like E-Gold and E-Silver, wherein retail investors can buy a minimum of 1 unit of gold equivalent to 1 gram of gold and 1 unit of silver equivalent to 100 grams of silver in demat form at real-time Indian prices, which tracks the international gold/silver prices.

Unfortunately, we have to wait for some more time for any mutual fund investment in silver or silver ETF. Silver ETFs have not yet taken off in the country because of a debate over whether trading will be allowed under market regulator Securities and Exchange Board of India(SEBI) or commodities market cop, the Forward Market Commission(FMC).

Why to Invest in Silver?

Silver has two diametrically opposite forces determining its price: The demand as an industrial metal (lower in a slowing economy) and demand as a safe haven. After getting de-linked as a form of currency, silver started being used more as an industrial commodity (around 73%).

Because of industrial usage. silver has given very encouraging returns to its investors. It has even out performed Gold. Let us take a look at past 30 years return data

• Gold has yielded a Compounded Annual Growth Returns [CAGR] of 8.8%.
• Fixed Deposit in Banks (India) gave a CAGR of 9.25%.
• Silver has yielded a CAGR of 10.2%.

How to Invest in Silver?

Now let us look at the ways of taking silver exposure available in India:

Jewellery / Bullion: Silver is also known as poor man’s gold. Silver jewellery gives the advantage of owning silver physically and also using it for fashion as well as prestige.

Bars can also be bought in 1 Gram to 400 ounces. It offers the satisfaction of holding the precious metal and ease of purchase online. There may be loss of value due to impurity, making charges and exchange rates if you need to sell them in case of jewellery.

National Spot Exchange Limited (NSEL): NSEL is a relatively new player in the market, and allows you to trade in e-Gold and e-Silver, and this is another way of getting exposure to silver. You can open your account with one of their Depository Participants, and there’s also an option to take physical delivery if you’re so inclined.

The futures unit of silver is 100 grams of silver, and you can take delivery in 100 grams, 1 Kg, 5 kg or a combination. ET reports that NSEL is Shariah Compliant as well. Silver investment do attract tax incidence in case of gain.

Commodity Futures: You can trade in commodity futures in India, and silver is one of the commodities that get traded, so you could potentially take a position in silver by trading on its futures. You can enable commodity trading by a special request to your broker, and thereafter trade in all the commodities available in exchanges like MCX and NCDEX, which include silver futures as well. But the problem with taking physical delivery for this precious metal is regarding purity and storage, which is always a difficult proposition for unsophisticated investor.

Milestone Bullion Series 1: This is a structured product, and the minimum investment needed to get into this product is Rs. 5 lakhs, so this is clearly not for everyone. The way it works is that they take the money and invest in a portfolio with the following assets: Silver: Up to 40%, Gold forwards / Gold deposit schemes: up to 40%, Gold linked structure: up to 30%.The fee charged is as follows: One time set up fee of 2% or 2.5% in case of investment less than 10 lacs. Annual Management fee of 1.5% of the committed amount.

Buy US silver ETFs from your trading account: You can ask your broker to enable overseas trading to you, and once enabled – you can buy and sell selected securities that trade in the US from your trading account. There are quite a few silver options available including silver futures, silver mining companies, and silver ETFs as well, so this option is something that you can also consider if you are interested in investing in silver.

Summary