Whenever a metal trades at a lower price per gram than its famous cousin, rumours multiply. Newcomers curious about a Silver ETF hear everything from guarantees of explosive gains to warnings of certain disaster. Others casually check the Tata silver ETF share price and form quick conclusions based on a few days of movement. Separating myth from reality is essential before any money changes hands.
Myth One: Low Price Means Easy Profit
Many people begin investing and think that because the white metal is much cheaper to buy gram-for-gram than the yellow metal, there is greater potential for growth. However, the price is much cheaper because of supply, demand and use in industry. It is just as likely to go down as up.
The unit price is irrelevant. Once a fund is created each unit will represent a percentage of the metal. The key thing to look at is how well the fund follows the price of the metal and what the costs are.
Myth Two: It always follows the price of the yellow metal.
They often act similarly, so people believe they are identical. In reality they are driven by different factors. The yellow metal is mostly moved by currency movements, interest rate expectations and fear of investors. The white metal has additional demand from industry. There will be times when one goes up and the other stays flat.
This can be helpful if you want to diversify your portfolio.
Myth Three: It is a safe investment.
Just because it is called precious doesn’t mean it is a low risk investment. The white metal can move in large percentages in a short space of time. This can leave you with draw downs for years. If you were looking for a stable investment you could be shocked by a steep drop.
This is a high volatility investment. Limit how much you invest, do not borrow any money and never invest money that you need to use soon.
Myth Four: Physical is better.
Some families believe that you need to invest in physical metal. Whilst it does provide comfort that you have something tangible to hold, there are extra costs to pay, storage issues, purity issues and you will lose some money when you sell. This metal in particular can be very bulky meaning you would need a large amount to get any real value.
Listed units allow you to have bullion held by a custodian, daily values and are regulated. Whilst they are not a good option for ornaments at your wedding they are a much more efficient option.
Myth Five: Timing is everything.
There are plenty of people on social media that are very confident that they know when the next move will happen. Unfortunately no one can accurately predict this. Those that wait for the perfect time to invest may be waiting forever. Those that invest inconsistently will often invest at the worst times.
If you choose to invest monthly you will purchase more units when the price drops and less when it increases. This will help to average the cost of your investment. Usually consistency is better than being clever.
Key Facts:
No interest or dividend payments. Returns are purely from price movements.
Look at the costs such as expense ratio, brokerage and spreads. Compare between funds.
Liquidity can vary, check how many are traded daily.
It is regulated by SEBI, however there is still risk.
Taxation and Due Diligence:
Profits will be taxed depending on how long you have held the investment. Recent Union Budgets have changed the provisions. Check what the current rules are using official guidance or a Chartered Accountant. Only invest with registered brokers and advisers. Be wary of anyone promising returns.
Investing with your Eyes Open.
Myths will often occur where there is little information. Knowing the true nature of this metal, that it is volatile, has two forms of demand and that there are costs involved will help to prevent you from being disappointed. Invest small amounts, keep it diversified, review yearly and base your decisions on facts rather than rumours.
