New operating norms by SEBI
Rules that silver exchange traded funds would have to invest 95 per cent of net assets in silver and related instruments
New operating norms by SEBI Rules that silver exchange traded funds would have to invest 95 per cent of net assets in silver and related instruments The Securities and Exchange Board of India (SEBI) recently amended the rules to introduce silver exchange traded funds (ETFs). The new norms, that came into effect early this month, make it convenient for investors to have exposure to...
New operating norms by SEBI
Rules that silver exchange traded funds would have to invest 95 per cent of net assets in silver and related instruments
The Securities and Exchange Board of India (SEBI) recently amended the rules to introduce silver exchange traded funds (ETFs). The new norms, that came into effect early this month, make it convenient for investors to have exposure to the commodity in a transparent manner.
Under the new rules, there are specific guidelines on investment objectives of silver ETFs, valuation, determination of net asset value (NAV), tracking error, tracking difference and disclosure requirements.
Currently, Indian mutual funds are allowed to launch ETFs tracking only gold.
In a circular, SEBI said that silver ETFs would have to invest at least 95 per cent of net assets in silver and related instruments.
Further, the Exchange Traded Commodity Derivatives (ETCDs), having silver as the underlying, would be considered as a silver-related instrument for silver ETFs. Also, investment in the ETCDs would be subject to certain conditions.
The exposure to the ETCDs would not exceed 10 per cent of NAV. However, this limit would not be applicable to silver ETFs where the intention was to take delivery of the physical silver and not to roll over its position to the next contract cycle.
SEBI stated, "Before investing in these ETCDs, mutual funds shall put in place a written policy with approval from the board of the Asset Management Companies (AMC) and the trustees." Also, the policy would be reviewed at least once a year.
It further informed that the cumulative gross exposure of silver ETFs would not exceed 100 per cent of the net assets of the scheme. The physical silver would be of a standard 30 kg bar with a fineness of 99.9 per cent purity. It would conform to the London Bullion Market Association's (LBMAs) good delivery standard.
Hemen Bhatia, the deputy head of ETF, Nippon Life India Asset Management, said, "With SEBI laying the 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."
The NAV of silver ETFs would be disclosed on a daily basis on AMC's website, and the indicative ones on stock exchange platforms, where the units of these ETFs would be listed on a continuous basis during the trading hours.
As for the benchmark for the silver ETF scheme, the market regulator said that it would be against the price of silver, based on LBMA's daily spot-fixing.
The units of silver ETFs would be listed on the recognized stock exchange and the AMC would appoint authorized participants (APs) or Market Makers (MMs) to provide liquidity for such units in the secondary market on an ongoing basis.
"The APs/MMs and large investors may directly buy/sell units with a mutual fund in creation unit size. The AMC shall disclose the details of the unit size of silver ETF in the Scheme Information Document (SID)," SEBI explained.
On tracking error, the regulator informed that the annualized standard deviation of the difference in daily returns between physical silver and the NAV of silver ETF (based on past one year rolling over data) would not exceed two percent.
In case the tracking error exceeded two per cent, the approval of the board of AMC and trustees should be taken and the same would be prominently disclosed on the website.
The scheme would also disclose the difference of returns between physical silver and the silver ETF on a monthly basis for tenures 1-year, 3-years, 5-years and 10-years and since the date of allotment of units.
To enable the investors to make an informed decision, the SID of silver ETFs would disclose the market risk. It would be related to the volatility in silver prices, liquidity risks in physical or derivative markets impairing the ability of the fund to buy and sell silver, risks associated with handling, storing and safekeeping of physical silver.
For commodity-based funds such as gold and silver ETFs and other funds participating in the commodities market, SEBI said a dedicated fund manager with relevant skills and experience in the commodities market including the derivatives market, would be appointed.
However, it clarified that dedicated fund manager(s) for each commodity-based fund was not mandatory. The statutory auditor of mutual funds would carry out physical verification of silver underlying the silver ETF units. He would report about the same to the trustees on a half-yearly basis.
The confirmation on physical verification of silver would also form a part of the half-yearly report by trustees to SEBI.
SEBI maintained that, additionally, gold ETFs would comply with the norms related to the disclosure of NAV to the SID-dedicated fund manager as specified for silver ETFs. The existing gold ETFs would comply with these provisions within a span of three months.