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SEBI amends Mutual Fund Norms to launch ETFs on Silver

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Sebi notifies norms to include silver in mutual fund schemes

On November 9, 2021, the Securities and Exchange Board of India (SEBI) notified SEBI (Mutual Funds) (Third Amendment) Regulations, 2021 amending the SEBI (Mutual Funds) Regulations, 1996 to allow the launch of exchange traded funds (ETFs) on silver .

  • This notification will enable the asset management companies (AMCs) to include silver or silver-related instruments in the investment schemes or initiate ‘silver ETF schemes’.

What is a silver ETF scheme?

It is a mutual fund (MF) scheme which invests primarily in silver or silver-related instruments having silver as the underlying product. It passes on the benefits of price efficiency, liquidity and convenience to retail investors.

  • Under this scheme, silver held by the ETF scheme will be valued at the AM fixing price of London Bullion Market Association (LBMA) in the US (United States) dollars per troy ounce for silver having a fineness of 999.0 parts per thousand.

Factors affecting value of silver ETFs:

i.Adjustment for conversion to metric measure as per standard conversion rates

ii.Adjustment for conversion of US dollars into Indian rupees as per the RBI reference rate declared by the Foreign Exchange Dealers Association of India (FEDAI)

iii.Transportation charges, notional customs duty and other applicable taxes and levies incurred in bringing silver from London to the place where it is actually stored on behalf of the MF.

Key Norms by SEBI for Silver ETFs:

i.MFs must appoint a custodian to preserve custody of silver or silver-related instrument securities and offer custodial services.

ii.The money raised through the silver ETF will be invested solely in silver or silver-related securities in accordance with sub-regulation (6) of regulation 44 of the amendment.

iii.While funds are being deployed, the mutual fund may invest them in scheduled commercial banks’ short-term deposits.

Key Points:

i.Prior to the above notification, Indian MFs are allowed to launch ETFs tracking gold.

ii.In September 2021, SEBI proposed to allow MF companies to introduce silver ETFs in the Indian market.

iii.Currently, Indians invest in silver through traditional routes such as silver bars, silver coins, and silver jewellery, or through paper forms of silver like futures.

iv.Globally, there are at least four silver ETFs with AUM (Assets under management) of more than $ 1 billion.

  • iShares Silver Trust is the world’s biggest silver ETF with AUM of over $12 billion.

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About Securities and Exchange Board of India (SEBI):

Establishment– 1992
Chairman– Ajay Tyagi
Headquarter– Mumbai, Maharashtra