Silver holds a significant place in India's cultural fabric, celebrated during auspicious occasions and cherished as a symbol of prosperity. Beyond its traditional uses, silver plays a crucial role in various industries, including automotive, telecommunications, and renewable energy. As an investment avenue, Silver Exchange Traded Funds (ETFs) offer investors a convenient and efficient way to capitalise on the potential of this precious metal.
Silver’s importance in modern manufacturing processes cannot be overstated. Its versatility extends to automotive manufacturing, where it is used in electrical components and catalytic converters. In telecommunications, it plays a crucial role in producing high-quality devices through applications like silver-coated mirrors and conductive ink.
Additionally, silver's conductivity and durability make it an ideal material for solar panels, supporting the global shift towards renewable energy sources. As renewable energy and technology continue to advance, the demand for silver in industries is expected to rise sharply, further solidifying its status as a valuable commodity.
The demand for silver continues to soar, driven by industrial applications and investment demand. However, silver's finite supply, coupled with challenges in mining and refining, poses supply constraints. The delicate balance between demand and supply dynamics influences silver prices, making it an attractive investment option for savvy investors.
Source: Silver Institute
While silver is mined globally, its scarcity relative to demand contributes to its investment appeal. Moreover, silver's dual role as a precious metal and an industrial commodity enhances its investment resilience, offering a hedge against inflation and economic uncertainty.
According to the Silver Institute's World Silver Survey, industrial demand for silver surged to a new peak, reaching 18,663 metric tonnes (MT) in 2023. Looking ahead, the institute forecasts a 2 percent growth in total silver demand for 2024, with industrial fabrication expected to reach another all-time high.
Additionally, global silver mine production saw a slight decrease of 1 percent in 2023, with a projected marginal 0.8 percent decline. Overall, the silver market is anticipated to witness another substantial deficit in 2024, amounting to 6,688 MT, marking this the second highest deficit in over 20 years.
Investing in silver ETFs offers numerous advantages for investors. First, they provide a convenient alternative to owning physical silver, eliminating the need for storage and maintenance. Additionally, investors incur zero storage costs with silver ETFs, as the silver holdings are maintained in dematerialized form. Then it closely tracks the price of silver, allowing investors to benefit from its price movements and potential upside.
Also, these ETFs typically have a low expense ratio, ensuring cost-efficient investment management. Investors without a demat account, may consider investing in a Silver ETF Fund of Fund (FoF).
Furthermore, silver ETFs invest in high-purity silver, ensuring transparency and authenticity in the underlying assets. They also have the potential to deliver returns that outpace inflation, safeguarding investors' purchasing power. Moreover, silver ETFs are highly liquid, enabling investors to buy and sell units easily on stock exchanges during market hours. Most of all it also enhances portfolio diversification, mitigating risk and optimising risk-adjusted returns.
In terms of tax implications, starting April 1, 2023, the income earned from silver ETFs is taxed based on the investor's income tax slab. This tax treatment aligns silver ETFs with other non-equity mutual funds, ensuring uniformity in taxation across investment avenues.
In conclusion, silver ETFs offer investors a compelling opportunity to shine their portfolios by benefitting from the potential of this precious metal due to demand and supply dynamics. With its diverse industrial applications, limited supply, and strong investment demand, silver makes for an interesting investment avenue for those seeking to diversify their portfolio and hedge against market uncertainties.
As with any other investment, investors should conduct thorough research and consult their financial advisor in order to make an informed decision tailored to one’s investment objectives and risk tolerance.
Chintan Haria, Principal-Investment Strategy, ICICI Prudential AMC.
