Investing in Silver – E-Silver

by Gopal Gidwani on June 12, 2011 · 18 comments

in Financial Planning,Others

Introduction
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).

1 Year Silver Price Movement Chart

(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:

  • Photography
  • Manufacturing
  • Medicine
  • Water purification
  • Solar energy
  • Electronics
  • 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.

Silver Jewellery
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.

Silver Futures
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.

E-Silver
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.

Conclusion:
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.

For any comments on the above article please comment in the below comments section or write to us at
gopal_gidwani@yahoo.com

{ 18 comments… read them below or add one }

Gaurav Bansal June 13, 2011 at 5:01 pm

Hi Gopal,
I am very interested in this and have been trying to find people who have had exposure to this. Have you yourself ever tried this out and see if it works flawlessly? Pls let me know if you have opened accounts with any of the members listed on the site.

Reply

Gopal Gidwani June 14, 2011 at 4:34 am

Hi Gaurav,
Thanks for your comment. I have not yet opened an account with any of the DPs empanelled with NSEL.

I have a normal share trading account which I cannot use with NSEL. Currently in commodities my investments are restricted to Gold ETFs (these can be bought through NSE in a normal demat account) as we dont have any Silver ETFs in India.

The article was written as lot of people seek information on investing in silver. And as per information on the NSEL website they seem to be doing very well and have already opened more than 1 crore accounts (overall and not just for e-silver) in a very short span of time.

I personally dont see any issues with the product and feel it is a very good way to invest in commodities, specially silver as the commodity seems to be doing very well in the international market due to the demand-supply mismatch and various other reasons.

Reply

Govind June 30, 2011 at 6:36 am

Morning Gopal,

By inspiring from your article, I am now planning to open an commodities Spot A/C
so that I can buy Gold/Silver in EForm. one of my friend is working in IIFL(India Inforline). He recommended me to open an account in IIFL. Could you please let me know the market reputation of IIFL? I mean shall I go ahead to open an A/c in IIFL? My only concern is that, my holdings will be safe(EGold/ESilver)?

Waiting for your valualable suggestion

Thanks,
Govind

Reply

Gopal Gidwani June 30, 2011 at 4:18 pm

Hello Mr. Govind,

You can go ahead with opening an account with IIFL. It is a well established and reputed broking firm. It is also listed on the stock exchanges.

Reply

Govind July 1, 2011 at 6:31 am

Thanks Gopal 🙂

Reply

Govind July 5, 2011 at 6:38 am

Hi Gopal,

As far as I know, There are various products available in the market for purchase of Gold or Silver in Electronic Format like
1 Gold Mutual Fund (Reliance/Kotak)
2 Gold ETF
3 EGold/ESilver

I am bit confuse which one to opt for purchase of Gold/Silver. I mean which one is best and have no RISK?

Please Vote which option to choose for purchasing Gold/Silver?

Waiting for your reply 🙂

Thanks,
Govind

Reply

Gopal Gidwani July 5, 2011 at 6:18 pm

Hi Govind,
There is no investment product without risk. Investment in gold / silver also carries the risk of the price going down after it is purchased.

Coming to choosing investment products, I would suggest avoid Gold Mutual Funds.

You can look at investing some money in Gold ETFs (Benchmark Gold ETF – GOLDBEES). In case of silver; well at the moment in India eSilver is the only option you have (silver futures are there; but they are very risky). So you can allocate some money to that. Please remember silver is a lot more volatile than gold i.e. silver prices movement variation is much more than gold. Silver has lot of industrial applications and the movement in the prices of silver is a function of demand and supply. Whereas gold is considered as a safe heaven or hedge against inflation. In the last 1 year silver has given almost 100% returns (prices have doubled).

So you can accumulate gold and silver in small – small chunks. You can buy 1 gram of gold (Gold ETF) and 100 grams of silver (eSilver) every month. Try not to invest more than 15-20% of your total investment portfolio in Gold / Silver.

Reply

Govind July 6, 2011 at 6:25 am

Thanks a lot Gopal

As I asked earlier also about India Infoline. They have SPOT Account for E-Gold and E-Silver. you can purchase small chunks of Gold and Silver. As you suggested to buy 1 gram of gold and 100 grams of silver every month. Will it be good if I open the SPOT A/c with IIFL and go a head to purchase E-Gold and E-Silver by Investing monthly small amount?

Again thanks a lot
Govind

Reply

Gopal Gidwani July 6, 2011 at 11:42 am

Hello Govind,

You can go ahead with monthly investment in E-gold and E-silver. I dont know about the SPOT A/c of IIFL. All I know about IIFL is they are well reputed company run by Nirmal Jain for whom I have very high respect as an entrepreneur who has made it big in life through broking business.

Reply

Govind July 6, 2011 at 12:28 pm

Hi Gopal,

I think i have used the wrong word i.e. “SPOT A/c”. I am referring to Spot Exchange
http://www.nationalspotexchange.com/eseries.htm

Thanks,
Govind

Reply

Gopal Gidwani July 7, 2011 at 5:25 am

Hi Govind,
You can go ahead with the opening of Spot A/c for egold and esilver

Reply

Govind July 7, 2011 at 2:13 pm

Thanks Gopal

Hoping the experience of investing in EGold/ESilver will be fruitfull

Again thanks for your imediate response and valuable advice

Cheers
Govind

Reply

naveen gupta July 25, 2011 at 2:26 am

what is best price of silver to buy in these days . How I know that it is the time to buy and it is the time and best price to sell

Reply

Gopal Gidwani July 25, 2011 at 6:22 pm

Hello Naveen,
No one will be able to tell you what is the best price to buy silver and what is the best price to sell it. If anyone knew the exact answer to this question then that person will be a very very rich person. All I can tell you is if you wish to buy silver, irrespective of the current price now, you can accumulate it in small lots of 100 grams on a monthly basis for the next few years. This will average your purchase price on every rise and fall. Later over a period of time when the price rises you can sell it.

Reply

Sneha August 14, 2011 at 10:58 am

Can you tell me as why only 15-20% of investment should be of gold and silver. As from the history we have seen that in a longer term, the price of gold and silver never decreases. it will be always higher after 10 yrs compared to today.

Reply

Gopal Gidwani August 15, 2011 at 7:56 am

Hello Sneha,
In the last 11 years since 2001 gold has always given positive returns year after year. But if you increase the time horizon to 30 years back you will see that there have been continuous years when gold has given negative returns. Check the gold chart at the below page
http://mahalanobis.twoday.net/stories/1219099/
In this you will notice that gold peaked out in 1980 and after that it was in long down trend for almost 20 years when it bottomed out in about 2000. Then the rally began in 2001 and it is yet to peak out. So it is not necessary that gold will give you positive returns every year-after-year.
Thats the reason why you should not have too much of exposure to one asset class. Ideally your portfolio should have a mix of equities, commodities, fixed income instruments and real estate

Reply

Ritesh January 9, 2013 at 2:07 pm

Hi Gopal,
in your opinion, Is there any possibility of starting Silver ETF in India ?

Reply

Gopal Gidwani January 12, 2013 at 7:34 pm

Hello Ritesh,
I have no clue on that

Reply

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