Market regulator Sebi on Wednesday released operating standards for silver exchange-traded funds (ETFs), a move that will allow investors to gain exposure to these commodities in a transparent manner.
Under the standards, the regulator specified guidelines on the investment objectives of ETFs on money, valuation, determination of net asset value (NAV), tracking error as well as tracking and disclosure requirements.
Currently, Indian mutual funds are allowed to launch ETFs that track gold. In a circular, Sebi said silver ETFs will need to invest at least 95% of net assets in silver and money-related instruments.
In addition, Exchange Traded Commodity Derivatives (ETCDs) with silver as an underlying will be considered as money linked instruments for silver ETFs. The investment in ETCDs having silver as an underlying by silver ETFs will be subject to certain conditions. Exposure to DCEs with silver as an underlying will not exceed 10 percent of the net asset value of the system.
However, this limit will not apply to silver ETFs whose intention is to take delivery of physical silver and not roll over its position in the next contract cycle. “Before investing in ETCDs with silver as an underlying, mutual funds must have a written policy in place regarding such investment with the approval of AMC’s board of directors and trustees.” , said Sebi.
The policy will be reviewed by the board of directors of the asset management company (AMC) and the trustees at least annually. The gross cumulative exposure of silver ETFs will not exceed 100 percent of the net assets of the program. According to Sebi, physical silver will consist of standard 30kg bars with a purity of 99.9%, in accordance with the London Bullion Market Association (LBMA) Good Delivery Standard.
“With Sebi establishing regulations 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 Director – ETF, Nippon Life India Asset Management Ltd, said. The NAV of the Silver ETFs will be disclosed daily on the AMC website. In addition, indicative NAVs will be disclosed on stock exchange platforms, where units of these ETFs are listed, continuously during trading hours.
Regarding the benchmark for the silver ETF pattern, Sebi said that such a pattern will be compared to the price of silver based on the daily spot fix of LBMA Silver. The units of the Silver ETFs will be listed on the recognized stock exchange and the AMC will appoint Authorized Participants (APs) or Market Makers (MM) to ensure the liquidity of these units in the secondary market on an ongoing basis.
“AP / MM and large investors can buy / sell shares directly with the mutual fund in the size of the creation unit. The AMC will disclose the details of the size of the creation unit in the ETF Silver in Pattern Information Document (SID), ”Sebi said. Regarding the tracking error, the regulator said that the tracking error – the annualized standard deviation of the difference in daily returns between physical silver and the ETF’s net asset value on silver on the base of the turnover data of the previous year – will not exceed 2%. .
Disclosure on this matter will be made on a monthly basis on the CMA website. In case of unavoidable circumstances, the tracking error exceeds 2 percent, then the approval of the CMA board and directors must be taken and the same will be prominently disclosed on the website of the CMA. AMC.
Along with disclosing the tracking error, Silver ETF programs will also disclose the tracking difference – the difference in return between physical silver and silver ETF – on the website of the. AMC on a monthly basis for the 1-year, 3-year, 5-year, 10-year mandates and from the date of allocation of the units. To enable investors to make an informed decision, the SID of silver ETFs will disclose the market risk due to the volatility of silver prices, liquidity risks in physical or derivative markets compromising the fund’s ability to buy. and selling money, the risks associated with handling, storing and preserving physical money.
For commodity-based funds such as gold ETFs, silver ETFs and other funds participating in the commodities market, Sebi said a dedicated fund manager with skills and background Relevant experience in the commodities market, including the commodity derivatives market, will be appointed to manage the fund. However, Sebi clarified that the dedicated fund manager (s) for each commodity-based fund is not mandatory. The regulator said the physical verification of the money underlying the silver ETF shares will be carried out by the mutual fund’s auditor and will report to the trustees on a semi-annual basis.
Confirmation of the physical verification of the money will also be part of the semi-annual report of the trustees to Sebi. The standards for silver ETFs come into effect on December 9. Additionally, Sebi has stated that gold ETFs will further comply with standards for net asset value disclosure, disclosure in SID, dedicated fund manager as specified for silver ETFs. . Existing gold ETFs will comply with these provisions within 3 months.
On November 9, the Securities and Exchange Board of India (Sebi) changed the rules to introduce silver exchange-traded funds.