Soon, silver-linked debentures to bet on the precious metal
Domestic institutions such as Karvy Private Wealth and Edelweiss Capital are in various stages of launching silver-linked debentures.
Instruments that would allow investors to take an exposure to silver could soon be a part of the portfolios of high networth individuals.
Certain financial institutions which develop such niche structures have been working on a silver-based product, according to market sources.
Domestic institutions such as Karvy Private Wealth and Edelweiss Capital are in various stages of launching silver-linked debentures.
“There has been a lot of demand for some means of taking exposure to silver. We plan to make these debentures available to investors in a month’s time,” said Swapnil Pawar, chief investment officer at Karvy Private Wealth.
A spokesperson for Edelweiss too confirmed their silver-linked debentures plan.
The product is expected to catch on in the absence of an electronic way of holding silver. Unlike gold, there are no silver exchange traded funds.
The new innovation can allow investors to tap potential upsides in silver while protecting downside risk.
Consider you are investing Rs100 in silver-linked debentures. Of this, around Rs80 would be invested in bonds or similar debt products, while Rs20 would be invested in a long-dated option, which would give the investor his returns depending on the change in the price of silver.
The interest from the debt portion accumulated during the life of the product would make up the remainder of the Rs100.
In such a structure, the investor would regain his principal and benefit from any payoff from the option.
The product would be closed-ended with varying lock-in periods usually customised to individual client requirements.
The life-span of a typical products can stretch to around three years with an average ticket size of Rs5 lakh.
A niche product aimed at wealthy individuals, the initial market for silver linked debentures is expected to be at least Rs100 crore to start out with.
Earlier, gold-linked debentures had gained popularity as a derivative product for HNIs with a view on the yellow metal.
The long-term outlook for silver is bullish, according to analysts with prices expected to hit Rs46,000 per kilo over the next three months.
On Friday, silver was at Rs45,390. It has gained 18.52% since the beginning of November.
“Silver is more volatile than gold, internationally this makes silver based products more popular,” said K Joseph Thomas, head of research at Aditya Birla Money Mart.