Despite the low prices, commodities are risky investments
In recent years, gold has lost its sheen over stocks and other investment assets. It is trading at its lowest price in the last six years. Its close cousin, silver, has seen an even sharper drop in prices. A few years ago, silver was the hottest commodity, with famous trader Jim Rogers betting big on it.
Today, silver, just like gold, has lost its attractiveness as an alternative investment. The contrarian view, however, is that it could be the right time to invest since it is available at a very low price. In this article, we will discuss the different ways to invest in silver.
A brief note on silver prices
Silver had a dream run from 2007 to 2012, when it peaked at about Rs 55,000 per kg. Since then, its prices have plummeted to about Rs 34,000 per kg. In fact, today’s price is equal to the price in the latter half of 2010. This fall is explained by a general slowdown in commodity prices because of slow growth in the world economy.
Investing options in silver
There are different grades of silver for investment. Sterling grade and above are considered good for investment. Sterling grade is also called grade 925. It contains 92.5 per cent silver, while the rest 7.5 per cent is other metals, usually copper.
Traditional ways: The traditional ways to invest in silver are buying silver coins and silver bars. Investors can buy from banks, bullion traders such as Metals and Minerals Trading Corporation of India (MMTC) or from open market transactions. The advantage of investing in silver is its affordable price. Unlike gold, where you have to invest in thousands, silver coins can be bought with a few hundred rupees. Investors can buy a 10 gram coin at a price of about Rs 340 only.
The problem with investing in physical silver coins and bars is storage. Usually, the volume is more than that of gold, hence, storage is a big problem with physical silver. Unfortunately, fund houses or exchanges do not offer silver fund or silver ETF unlike Gold fund or Gold ETF. But investors can go through National Spot Exchange Limited (NSEL). Let’s look at what options NSEL provides.
Investing through NSEL: NSEL is an electronic spot exchange for commodities where investors can trade in e-Gold, e-Silver, e-Copper and many other commodities. These are called e-Series products. For trading in NSEL, investors have to open a separate demat account with any of the depositories. The name of the depositories is can be found on the NSEL website (http://www.nationalspotexchange.com/eseries.htm?m=16). Key in your state and city, find the depository, and open an account.
Once you open your demat account, you can buy silver (or any commodity such as gold or copper) in dematerialised form online. Unlike trading hours of NSE, here the trading hours are from 10 AM to 11:30 PM. The unit of e-series varies with the type of commodity. For gold, 1 unit is 1 gm, while it is 100 gm for silver and a kg for copper. Like any trading, there will be commission for each transaction. Investors can check with their depository on this.
The advantage of trading on NSEL is that investors can convert their e-Silver into physical silver or simply get the cash by trading. NSEL has designated few centres across the main cities in India to facilitate it. Hence, if you want to convert your e-Silver into physical form, contact any of the designated centres. This too can be found on the NSEL website.
Important points to keep in mind
First, despite the low prices, commodities are risky investments. The price fluctuation in commodities can be even more volatile than stocks. Hence, investors should be aware of the risk associated with commodity investing.
Second, do not compare silver investing with that of gold. Gold, despite the price fluctuations, is still a stable investment. If you look at the deviation of prices from its peak, gold has depreciated by about 20 per cent, while for silver, it is as much as 35 per cent. Even though there is correlation between these two, the variation in silver is higher, making it riskier.
Third, if you want to invest in silver via traditional ways, look for sellers who are reliable. It is very difficult to a layman investor to assess the quality and grade of silver. Hence, buy only from reliable jewellers. There is no problem if you buy from banks though.
Finally, investing in silver should be done in a systematic way. This means you should not go for lump sum investment. Rather invest a part of the savings into it every month so that price fluctuations can be circumvented.
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