When it comes to investing in precious metals, the first choice for people is gold. Silver is often considered as the poor cousin of gold. But in the last one year the prices of silver shot up from around Rs. 26,000 per kg to hit a high of Rs. 70,000 and currently settle down at Rs. 55,000 (June 2011).
(image source: www.goldprice.org)
In the last one year silver prices have almost doubled. This huge run up in the prices of silver in such a short time has caught the attention of everyone and made everyone sit up and take notice of it. These days everyone is interested in investing in silver and exploring ways in which they can invest in silver. In this article we will look at one such retail investor friendly way of investing in silver – E-Silver.
Applications of silver
Before we look at E-Silver in detail, first let us look at some of the applications of silver. Silver just like gold can act as a hedge against inflation due to which currencies lose value. But unlike gold; silver has lot of applications. Silver is used in:
- Water purification
- Solar energy
- Batteries etc.
Gold and silver used in jewellery can be recycled and used again. But silver used in the above applications, once used is gone and cannot be recycled. And with every passing day newer and newer applications of silver are emerging. The demand for silver due to these applications is going up. The supply of silver is not able to keep pace with the increasing demand. This demand-supply mismatch explains the frenetic rise in the prices of silver in the last few years. The existing global silver reserves are fast depleting and there have been no new major discoveries made in the recent past. The demand-supply mismatch has sent silver prices soaring in the last couple of years. Investors explore different ways of investing in silver to benefit from the price rise just like any other asset class.
Ways of investing in silver
Now let us look at some ways of investing in silver.
This is the most traditional and oldest way of investing in silver. We Indians are very much obsessed with wearing gold / silver ornaments and due to this reason India is the largest importer of gold in the world. Lot of people buy jewellery during weddings and auspicious days like ‘Akshay Tritya’, ‘Dusshera’ and ‘Diwali’. But buying silver in the form of jewellery has its own disadvantages like storage costs, risk of theft, insurance and loss of value at the time of selling.
Silver Bars and Coins
Investors can also invest in silver by buying silver coins and bars. These silver bars and coins can be bought from banks, jewellers, financial services companies or even some post offices. Silver coins are available in various denominations like 50 grams, 100 grams, 500 grams, 1 kg etc.
Investors can take exposure to silver through the derivatives market. Investors can buy silver futures contracts through which they can buy a fixed quantity of silver at the fixed price on a certain future date. In India silver futures are traded on the MCX, NCDEX and NCME commodity exchanges.
However investors need to be aware of all the risks before investing in futures. Caution needs to be exercised before putting hands in the futures market as a negligent investor may end up burning his fingers in the futures market.
Silver Exchange Traded Funds (ETF)
Silver ETF’s are like mutual funds. Silver ETF’s buy and sell units just like mutual fund units. Every purchase of units by an investor is backed up by equivalent purchase of physical silver by the fund. These ETFs are listed on the stock exchanges and can be bought and sold through broking firms just like shares. Although in the international market we have lot of Silver ETFs, in India we still don’t have any silver ETFs, though there are quite a few gold ETFs in India.
The National Spot Exchange Limited (NSEL) has introduced E-series products in commodities which allow retail investors to trade and invest in commodities just like they do in equities. NSEL has launched its first product under the E-Series as E-Gold on Wednesday, the 17th March, 2010. Since then the NSEL has extended the E-series products to include gold, silver, copper, zinc and lead.
Demat Account Requirement
To trade in E-silver the investor has to open a demat account with one of the empanelled Depository Participants (DPs). It enables the retail investor to invest in commodities in smaller denominations and accumulate / hold them in demat (electronic) form. The investor has the option to sell his holdings whenever he wishes to or he can take physical deliver of the commodity. The current list of empanelled DPs include Aditya Birla Money Limited, Anand Rathi, Axis Bank, Geojit, India Infoline, IndusInd Bank, Karvy Stock Broking, Kotak Securities, Religare Securities, Sharekhan and many more DPs. For the full list of empanelled DPs visit www.nationalspotexchange.com.
Investing in E-silver
- E-silver trading started from 21st April 2010.
- Once the investor opens a demat account, he can start investing in e-silver by placing purchase order/s through the broker on phone or online trading.
- Investing in e-commodities is pretty much similar to investing in equity shares. On purchases, units of e-silver are credited to the buyers demat account. Each lot of e-silver is of 100 units equivalent to 100 grams of silver.
- By buying silver in electronic form (demat), the individual need not worry about the purity of silver, storage costs and the insurance of silver.
- Investment in commodities like e-gold and e-silver offers the retail investor an excellent opportunity to diversify their investment portfolio.
- The exchange trading happens from Monday to Friday and the timings are from morning 10:00 AM to evening 11:30 PM.
- The silver purchased is of 999 purity.
E-silver is an excellent investment option for the retail investor to invest in silver and benefit from the price rise of the white metal in the long run. Silver prices have almost doubled in the last one year. E-silver offers an excellent way for the retail investor to diversify his investment portfolio. However gold and silver should not exceed 10-15% of the total investment portfolio of an investor.
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