Every time the white metal makes news, investors rush to compare options and declare winners. People searching for the Best silver ETF in India often begin with a table of recent returns, and many also check the Nippon Silver ETF share price to see how it has moved over the week. Both habits are understandable, but neither tells the full story. A fund’s quality is revealed by features that rarely make headlines, and learning to read them is a skill worth building.
Why Recent Returns Mislead
These funds just reflect the domestic price of the bullion. So, the overall returns from similar funds will show very similarly over a period of time. Any discrepancies will be due to the cost and efficiency of the fund.
Pursuing the best performer over the last month may not be so useful. You may notice some funds have a slightly better return over a short period of time but this could be because the units were created at a certain point in time or there is a temporary discrepancy between the market price and the underlying value. If looking over 3-5 years you get a more realistic picture.
Tracking Difference:
The main role of this type of fund is to track the metal as much as possible. The tracking difference shows how much the returns of the fund differ from the price of the metal over a period of time. Some of this discrepancy will be due to the fund’s annual charges but if there is more than this, it shows inefficiency.
Comparing this over a few years and between different funds will help. If there is a consistently wide tracking difference then you should look into why. This information can be found in monthly factsheets provided by fund houses. They follow a set format so it will be easy to compare.
Liquidity and Impact Cost:
This may seem like a great fund but if there isn’t much trading going on it may not be as good as it seems. The level of liquidity will tell you how easy it is to buy/sell without affecting the price. Look at the average daily volume and what is happening on the order book during market hours. The bid/offer spread should be small.
If there isn’t much trading happening it could cause issues during stressful times. The bid/offer will be wider and it will be harder to sell. Try and look for a fund with consistent trading and place limit orders so you never pay more or get less than you want.
Backbone:
There should be actual bullion held in custody by a custodian and independently audited to ensure the correct amount. The bullion must also meet specific standards for purity set by SEBI. Take a few minutes to look at the fund house, custodian and scheme.
Useful points to look out for:
Size of scheme and age.
How regularly and clearly the monthly information is provided.
Reputation of the asset management company.
Have there been any strange tracking differences before?
Volatility:
The white metal is more volatile than the yellow metal. It is more volatile because there is less in the market and due to the industrial demand. Large increases and decreases are common so most planners will see this as a satellite investment. This means you won’t have too much in this.
If you need access to your money in a few years then you should look at safer investments. Monthly investing will also help with smoothing out the volatility.
Taxation and Documentation:
You will pay tax on gains depending on how long you have held the investment for. There have been changes to the provisions recently in the Union Budget. Before selling look up what the current rules are using official guidelines or a chartered accountant. Ensure you keep your contract notes and statements in an organised folder. Each investment will have its own date and price.
Best Fund for You:
The best fund for you will be a low cost, closely tracked fund with good liquidity and a reputable sponsor. Invest the correct amount for your plan. Don’t worry about the weekly rankings and look at the fundamentals. Invest regularly and this will help you in the long run.