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In its board meeting on Tuesday, markets regulator Securities and Exchange Board of India (Sebi) allowed mutual fund houses to introduce silver exchange-traded funds (ETFs) in the Indian market.

As of now, there are no silver ETFs, unlike gold ETFs that are backed by physical gold in India.

The launch of gold and crude oil ETFs has been the long-standing demand of the industry in India.

Experts believe that precious metals such as silver, platinum and palladium can be a way to diversify one’s portfolio away from a single precious metal.

Gold, along with silver, has been a preferred investment class for scores of Indians over the past many decades.

Nippon India ETF Gold BeES is the biggest gold ETF in India with assets under management (AUM) of more than 6,000 crore. It is followed by HDFC Gold ETF and SBI ETF Gold with AUM of 2,682 crore and 2,354 crore, respectively.

“We welcome Sebi’s decision to permit silver ETFs to be launched in India. It expands the bouquet of ETFs available to investors. The physical silver market in India is sufficiently deep to support silver ETFs. Gold ETFs have been in existence since 2007 and continue to see a rapid expansion in investor base," said Vishal Jain, head - ETF, Nippon Life India Asset Management Ltd.

Since gold ETFs closely track the performance of bullion prices, most schemes have been in the red up to 10% on a yearly basis.

Experts say that even though silver is often correlated to gold, at times it may have its own independent demand and supply dynamics.

“Purely from a diversification point of view, one can consider silver ETFs. But these are still early days. Silver has industrial usage, so in a sense, via silver, we can participate in the actual economy unlike gold," said Suresh Sadagopan, founder, Ladder7 Financial Advisories and a Sebi-registered investment adviser.

Sadagopan, however, believes that there might be a few issues with silver ETFs.

“First is that as opposed to gold, silver is bulky, which may increase costs for storing and warehousing. So, we will have to see whether these ETFs will be priced at the reasonable level or not. The second concern is that gold and silver have a certain bit of correlation, and we need to still mull over whether it makes sense to separately invest in silver ETFs," he added.

In India, as of now, people invest in silver through traditional routes such as silver bars, silver coins and silver jewellery, or through paper forms of silver such as futures.

According to Priti Rathi Gupta, founder, LXME, a financial platform for women, investors who are tired of the complexities of futures contracts and the dangers associated with them, could find this mode (silver ETFs) more comfortable.

“Even though silver and gold work in parallel, silver has its own market dynamics. Hence, silver can be a huge success in the financial markets even for retail investors," Gupta said in a note.

However, experts do have a word of caution.

Kaustubh Belapurkar, director-manager research, Morningstar India, believes that investors should be judicious with their investment and allocation as silver prices like any other commodity can be volatile.

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