Kotak Mahindra AMC launches Silver ETF Fund of Fund

• Historically, silver has been a potential hedge against times when the markets have gone through a crisis.
• The Kotak Silver ETF Fund of Fund is an open ended ETF replicating/tracking the price of silver.

Kotak Mahindra AMC announced the launch of Kotak Silver ETF Fund of Fund on Monday. It’s an open-ended fund of fund scheme that invests in units of Kotak Silver exchange traded funds or ETFs.

The New Fund Offer opens for public subscription on March 13, 2023 and closes on March 27, 2023.

“We are launching Kotak Silver ETF Fund of Fund to make it easier for investors to diversify their portfolios with convenient access to this precious metal, which has various industrial applications. The current silver prices present a potential opportunity for those interested in allocating funds to this asset in the medium to long term,” said Nilesh Shah, managing director, Kotak Mahindra Asset Management Co.

Apart from jewellery, silver is used for various purposes. Every computer, mobile phone, automobile, photovoltaics, applications and solar cells, ball bearings, catalysts and water purification devices use silver. Silver is also used in medicines, and plays an important role in renewable technology.

Demand for silver on the rise

According to the World Silver Survey, 2021 saw the largest annual growth in mined silver. The demand for silver has also recently overpowered its supply. Record inflows into silver Exchange Traded Products (ETPs) were also recorded in 2021, With a rise of 6%, ETP holdings surpassed one billion ounces.

In the past, silver as a commodity had provided protection during crises. For instance, during the recent Russia-Ukraine conflict, while Nifty50 fell by 10%, silver prices surged by 12%, said Kotak AMC in its press release.

According to Bloomberg Data, during Covid 19 (February 1, 2020 to March 24, 2020) Nifty50 returned -33% while silver returned -14%. During the subprime mortgage (January 1, 2008 to February 27, 2009), Nifty50 gave negative returns of 54% while silver gave a positive 13% return.

Silver has generated 80% returns in the last five years. The correlation of silver with other asset classes is low. With gold, Nifty and debt it has a correlation of 0.6, 0.3 and 0.2% respectively, thus making it an important part of a portfolio, Kotak AMC said.

Investing in silver via an ETF has several benefits. “There are no making costs (like in purchase of silver jewelry) or storage costs. Investing in silver gives your portfolio the required diversification as we have seen how the correlation of silver with other asset classes is low,” Kotak said, adding that investors may consult their financial expert before making any investment decision.