Under the norms, the regulator has specified guidelines Investment Silver ETF’s objectives, valuation, determination of net asset value (NAV), tracking error as well as tracking differential and disclosure requirements.
Currently, Indian mutual funds are allowed to launch ETFs tracking gold.
SEBI said in a circular that silver ETFs will have to invest at least 95 per cent of their net assets in silver and silver-related instruments.
In addition, exchange-traded commodity derivatives (ETCDs) that have a silver underlying would be considered a silver-related instrument for silver ETFs.
Investments by silver ETFs in ETCDs containing the underlying silver will be subject to certain conditions. Investment in ETCDs having silver as underlying shall not exceed 10 per cent of the net asset value of the scheme.
However, this limit will not apply to Silver ETFs where the intention is to take delivery of physical silver and not to roll over its position in the next contract cycle.
“Earlier Investment SEBI said that since ETCDs contain silver, mutual funds shall put in place a written policy with due approval from the AMC and the board of trustees with regard to such investments.
The policy will be reviewed by the Board of Asset Management Company (AMC) and the Trustees at least once a year.
The cumulative gross exposure of the Silver ETF shall not exceed 100% of the net assets of the scheme. According to SEBI, as per the London Bullion Market Association (LBMA) Good Delivery Standard, physical silver will be of standard 30 kg bar with 99.9 per cent purity.
“With SEBI regulation for silver ETFs, it will become very convenient for investors to have exposure to silver as a commodity in a transparent manner, in addition to their exposure to gold.” Hemen Bhatia, Deputy Head of ETFs, Nippon Life India Asset Management Limited, said.
The NAV of Silver ETF will be disclosed on the website of AMC on a daily basis. In addition, the indicative NAV will be disclosed on the stock exchange platform where the units of these ETFs are listed on an ongoing basis during the trading hours.
With respect to benchmarks Silver ETFs Scheme, SEBI said that such a scheme would be benchmarked against the price of silver based on LBMA silver daily spot-fixing.
The units of the Silver ETF will be listed on a recognized stock exchange and the AMC will appoint Authorized Participants (APs) or Market Makers (MMs) to provide liquidity for such units in the secondary market on an ongoing basis.
“AP/MM and larger investors can buy/sell units directly from the mutual fund at the creation unit size. The AMC will provide the details about the creation unit size of the Silver ETF in the Scheme Information Document (SID),” SEBI said.
With regard to tracking error, the regulator said the tracking error – the annual standard deviation of the difference in daily returns between physical silver and the NAV of silver ETFs based on rolling over data for the past one year – would not exceed 2 per cent.
The disclosure in this regard will be made on the website of the AMC on a monthly basis.
In case of unavoidable circumstances, the tracking error exceeds 2 per cent, the approval of the Board and Trustees of the AMC should be obtained and the same shall be prominently displayed on the website of the AMC.
Along with the disclosure of Tracking Error, Silver ETF schemes will also disclose on AMC’s website Tracking Difference – Difference of Return between Physical Silver and Silver ETFs on monthly basis for periods of 1 Year, 3 Year, 5. year, 10 years and from the date of allotment of units.
To enable investors to make an informed decision, the SID of Silver ETFs is associated with handling market risk due to volatility in silver prices, liquidity risk in physical or derivative markets, reducing the fund’s ability to buy and sell silver, will disclose the risks. Storage and safekeeping of physical silver.
For commodity-based funds such as gold ETFs, silver ETFs and other funds participating in the commodity market, SEBI said a dedicated fund manager with relevant skills and experience in the commodity market, including commodity derivatives market, would be appointed to manage the fund. .
However, SEBI has clarified that dedicated fund managers are not mandatory for every commodity based fund. The regulator said the physical verification of silver contained in silver ETF units would be done by the statutory auditor of the mutual fund and would report the same to the trustees on a half-yearly basis.
Verification of physical verification of silver will also be part of the semi-annual reports to be submitted by the trustees to SEBI. The rules related to Silver ETFs will be effective from December 9.
Also, SEBI said that gold ETFs shall additionally comply with norms relating to disclosure of NAV, disclosure in SID, dedicated fund manager specified for silver ETFs. Existing Gold ETFs will comply with these provisions within a period of 3 months.
On 9 November, the Securities and Exchange Board of India (SEBI) amended the rules to introduce Silver Exchange Traded Funds.