Silver mutual funds lose up to 8% in three months. Should you buy when the price drops?

Silver mutual funds have lost up to around 8% in the last three months and have given an average return of negative 5.94% in the same period. Around 19 silver The investment funds have been on the market for three months. Silver Funds They are relatively new entrants to the market and have been around since 2022.

UTI Silver FoF ETF lost the most, around 7.83%, in the last three-month period. HDFC Silver FoF ETF posted a negative return of 6.58% in the said period. Tata Silver FoF ETF and Nippon India Silver ETF FOF lost 6.57% each in the same period. ICICI Prudential Silver ETF FOF gave a negative return of around 6.13% in the said period.

The Aditya Birla SL Silver ETF and ICICI Pru Silver ETF posted negative returns of 5.47% each in the past three months. The Kotak Silver ETF and Edelweiss Silver ETF lost 5.45% each in the mentioned period.

Following the negative performance of these funds, should investors be concerned about their investments? What factors led to this negative performance?

“Broader silver-based mutual funds have returned an average of -6.30% over the past 3 months, mainly due to central banks, particularly the US Federal Reserve, keeping rates high to combat inflation, which typically puts pressure on non-yielding assets like silver. Fears of a global recession have weakened industrial demand for silver, a metal widely used in manufacturing,” explained Tanvi Kanchan, Head of Business and Strategy, UAE, Anand Rathi Shares and Stock Brokers.

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Over the last month, the performance of these schemes has been lower on the performance chart. The average return offered by these schemes was 2.20%, with HDFC Silver ETF offering the highest return of around 2.87%. SBI FOF Silver ETFa relatively new entrant in the category, returned 2.66% in the mentioned period. ICICI Prudential Silver ETF and Aditya Birla SL Silver ETF returned 2.54% each in the said period. HDFC Silver ETF FoF returned 1.47% in the said period. UTI Silver ETF FoF returned only 0.36% in the same period.

With this lackluster performance of silver mutual funds, should investors consider it as a buying opportunity or should they expect further correction in these funds?

“Commodity funds should be a part of an investor’s asset allocation. When investing in commodity funds, investors should have a minimum investment horizon of three years as commodity prices can be volatile. Investors should maintain discipline in asset allocation and avoid making investment or redemption decisions based on short-term price movements,” said Manish Kothari, Co-Founder and CEO, ZFunds.

One expert believes that investors should not make investment or redemption decisions based on short-term price movement, while another expert believes that a short-term correction with strong long-term fundamentals could be a good entry point for investors.

“Silver has faced some volatility in the past few months, largely influenced by macroeconomic factors including interest rates, inflation and global geopolitical uncertainties. Silver may see further corrections in the short term, but the long-term fundamentals remain strong, especially with rising demand from industrial uses. This could make current price levels a potentially attractive entry point for long-term investors,” said Tanvi Kanchan.

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Gold mutual funds have been in the market for a long time, silver funds are comparatively new entrants in the market and have been around since 2022.

In the last three months, gold-based mutual funds have offered positive returns, albeit only around 0.13%. The Tata Gold ETF offered the highest return of around 1.06% in the last three months, followed by the Invesco India Gold ETF, which returned 0.47% in the same period.

In the said period, there were around 29 gold funds, of which nine posted negative returns. HDFC Gold Fund was the biggest loser, around 0.19% in the mentioned period.

Compared to gold, which offers a positive average return over the same period, should investors choose gold or silver-based funds for portfolio allocation?

“When deciding between the two, several factors come into play. Silver tends to be more volatile due to its heavy reliance on industrial demand, particularly in the green energy sector, offering higher potential returns but also higher risk. On the other hand, gold is considered a safer asset, especially in times of economic uncertainty, as it provides more stability and protection against inflation, as evidenced by its positive returns during recent market fluctuations,” Tanvi said.

He added: “For investors seeking stability, gold may be the best option, while those with a higher risk tolerance and a longer-term outlook might consider silver. A balanced approach that incorporates both can offer diversification benefits, taking advantage of the stability of gold and the growth potential of silver.”

Another expert believes that investors can allocate money to multi-asset allocation funds that have exposure to both gold and silver.

“Investors who are just starting out with commodities can consider investing in multi-asset allocation funds with exposure to gold and silver,” Kothari recommended.

Most of these silver funds have been in the market since 2022 and have returned up to 25% since inception. Nippon India Silver ETF, the largest silver mutual fund by assets under management, has returned 11.72% since inception.

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UTI Silver ETF FoF and UTI Silver ETF, launched in 2023, have offered returns of 6.49% and 6.12% respectively since inception.

Are these funds expected to deliver similar performance in the future? Should investors be concerned about their current investments?

“For today’s investors, while performance has been strong over the long term, silver remains a highly volatile asset, closely tied to both industrial demand and broader commodity cycles. Given its potential for both gains and downsides, investors may want to consider limiting exposure to silver in a diversified portfolio and maintaining a long-term outlook, particularly for those with higher risk tolerance,” said Tanvi Kanchan.

“If you have silver investments, there is no immediate cause for alarm, but it would be prudent to monitor economic indicators such as industrial production and inflation trends,” he added.

Gold and silver funds are used to diversify your portfolio. If you have a large portfolio, you can allocate a small percentage of your total portfolio (advisors say around 10%) to investing in gold and/or silver. If you are just starting out or have a very small portfolio, you may want to pass up this opportunity. Investors should remember that these funds will not offer you higher returns year after year. They are supposed to offer you diversification and add stability to your portfolio.

(Disclaimer:The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of The Economic Times.

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