Investing in silver: How good an option is it?

Last Updated: Tue, Jan 25, 2011 05:06 hrs

Gold prices have risen consistently in the last couple of years. However, as an investment, silver in the last one year has performed significantly better.

Over the past year, while gold returned 20 per cent, silver prices appreciated over 50 per cent.

That is, gold prices rose from Rs 16,435 to Rs 20,260 per 10 grams - an increase of 22 per cent. Silver has moved from Rs 27,770 to Rs 43,435 - a rise of 56.41 per cent (as on January 22, 2011) in the same period.

No wonder Govind Tiwari thinks silver would be a better bet in the market.

Tiwari has been investing in gold via exchange-traded funds since 2009, and has made good profits. But last year's surge in silver got him interested.

However, commodity experts are not sure.

Kishore Narne, head-commodities, Anand Rathi Financial Services, says "Silver prices have already peaked. And, it is too expensive to invest in it now."

He suggests investors wait for a 10-15 per cent correction in the prices before investing in this metal.

On the other hand, gold may perform well if the markets remain volatile or correct sharply.

Financial experts are increasingly beginning to look at silver as an investment option.

"Investors can stagger their investments and buy in small quantities," advises Amar Pandit, a certified financial planner. You could invest up to 5-10 per cent of your portfolio in silver, he adds.

The process is relatively simple.

While timing the market may not be in a retail investor's best interest, if there are profits in the equity part of the portfolio, you can book some and invest in silver. The best route, says Kavita Chacko, AVP-commodities, Angel Broking, should be bullion through future contracts.

Another option is e-silver.

Here, you can buy 100 grams of silver, and in its multiples, thereafter. The minimum investment required is Rs 4,500. It resolves issues about purity and storing silver.

"It is like trading in shares, except that you have the option of taking physical delivery of the metal," says Amar Singh, head-research (commodities), Aditya Birla Money.

Get more expert views on the best investment options in 2011

For trading in e-silver, you must open a separate demat account (different from the one used for shares) with a broker registered with the National Spot Exchange.

The account opening charges are Rs 100-150 (which may be waived by some brokers) and an annual maintenance charge of Rs 300-600 (starting mostly from the second year).

Separately, like share trading, each transaction (buy or sell) will attract brokerage charges, service tax and securities transaction tax. There will be an additional cost for taking physical delivery that is currently possible only in Mumbai, Ahmedabad and New Delhi - a making charge of Rs 200 (waived if the delivery quantity is more than 100 grams), delivery charge of Rs 200 and value-added tax of one per cent (on the total purchase value).

When investing through silver futures, you can choose from either mini-contracts (five kg), valid for one-three months, or bigger contracts (30 kg), valid for one-six months.

At the current rate, even mini-contracts would require an investment of Rs 2.28 lakh. If investing in physical silver, your minimum investment can start with a kg, which would require Rs 45,000.

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