DSP Launches Silver ETF Fund of Fund: A Smart Way to Invest in Silver

DSP Silver ETF Fund of Fund is an open-ended Fund of Funds (FoF) scheme that primarily invests in the DSP Silver ETF, aiming to generate returns by indirectly investing in physical silver. The scheme offers investors a convenient way to gain exposure to silver without the need to handle or store it physically. It tracks the domestic price of physical silver, based on the London Bullion Market Association (LBMA) silver spot fixing price, making it an appropriate benchmark.

This NFO does not list units on any stock exchange, though DSP may consider doing so later. NAVs are updated daily and available via the AMC and AMFI websites. Investors should note that while the fund seeks returns through silver exposure, there is no guarantee of achieving its investment objective. Redemption proceeds are typically processed within three working days, except in extraordinary scenarios as outlined by SEBI and AMFI guidelines.

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Key features of the DSP Silver ETF Fund of Fund - Direct (G)

Investment Objective and Strategy

DSP Silver ETF Fund of Fund' Objective:

The primary investment objective of the DSP Silver ETF Fund of Fund - Direct (G) is to seek to generate returns by investing in units of DSP Silver ETF. There is no assurance that the investment objective of the Scheme will be achieved

Investment Strategy of DSP Silver ETF Fund of Fund?

• The DSP Silver ETF Fund of Fund - Direct (G) will follow a passive investment strategy, primarily investing in units of DSP Silver ETF, which in turn tracks the domestic price of physical silver.
• The fund manager may acquire units either directly from the DSP Silver ETF or through the secondary market, depending on prevailing market conditions.
• The scheme seeks to replicate the returns of DSP Silver ETF with a maximum expected deviation of 2% on an annualized basis, net of recurring expenses.
• Fund deployment will occur immediately upon realization of clear funds, ensuring minimal delay and efficient tracking of the underlying ETF.
• Daily cash flow planning and monitoring are done to enable timely purchase/redemption aligned with investor demand and market movements.
• A small portion may be held in cash and cash equivalents to meet liquidity needs, such as redemption requirements.
• There is no specific portfolio turnover target, as turnover depends on investor activity and other operational dynamics.
• The fund's benchmark is the domestic price of physical silver (based on LBMA silver spot price), which justifies its objective to track silver performance accurately.

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Risks Associated with the DSP Silver ETF Fund of Fund

• Market Risk: The DSP Silver ETF Fund of Fund - Direct (G) performance is tied to the price of silver, which can fluctuate based on global supply-demand dynamics, economic shifts, and geopolitical events.
• Tracking Error Risk: While the DSP Silver ETF Fund of Fund - Direct (G) aims to closely track the DSP Silver ETF, slight deviations may occur due to operational costs, cash holding, or pricing differences on exchanges.
• ETF Premium/Discount Risk: ETF units bought on the secondary market may trade at a premium or discount to the underlying NAV, affecting investor returns.
• Concentration Risk: Being a thematic investment, exposure is concentrated solely in silver, making the scheme more volatile than a diversified mutual fund.
• Underlying ETF Risk: Any changes in the investment strategy, management, or expenses of the DSP Silver ETF can directly affect the fund’s performance.
• Liquidity Risk: During volatile markets or in case of inadequate subscriptions (not meeting creation unit size), fund deployment may be delayed or made sub-optimally.
• Cost-related Risk: Investors bear both the expenses of the FoF and the underlying ETF, potentially leading to lower net returns than direct investment in the ETF.
• Regulatory and Operational Risks: Changes in SEBI regulations or market operations can impact fund management and investor servicing.

Risk Mitigation Strategy by the DSP Silver ETF Fund of Fund

To reduce potential risks, DSP Silver ETF Fund of Fund (FoF) follows a transparent and structured investment approach. The fund manager actively tracks daily inflows and redemptions, enabling timely deployment of clear funds into the DSP Silver ETF. This helps minimize tracking errors and aligns performance with the underlying ETF. The strategy to acquire ETF units either from the secondary market or directly from the fund based on market efficiency allows the DSP Silver ETF Fund of Fund - Direct (G) to manage pricing risks and acquisition costs effectively.

Moreover, the allocation of a small proportion of assets to cash and cash equivalents—including government securities, treasury bills, and repos—ensures liquidity, enabling the fund to meet redemptions without disturbing the core silver exposure. By tracking a well-established benchmark (LBMA Silver Price), the fund provides clarity and consistency in performance measurement. While the nature of the fund inherently carries sectoral risks, the AMC employs robust operational controls and regulatory compliance frameworks to minimize errors and ensure investor protection.

What Type of Investor Should Invest in DSP Silver ETF Fund of Fund?

• Investors who are bullish on silver and want to participate in potential price appreciation of the commodity without physically buying or storing it.
• Those looking to diversify their portfolio by adding an asset class (precious metals) that generally behaves differently from equities and bonds.
• Investors with a medium to long-term investment horizon, willing to tolerate short-term volatility in silver prices.
• Individuals who prefer a passive investment approach aligned with commodity prices, rather than active fund management.
• Investors who understand the sectoral/thematic nature of the DSP Silver ETF Fund of Fund - Direct (G) and the associated risks of investing in a single commodity.
• Those seeking a cost-efficient route to invest in silver via mutual funds, without the need for a demat account or direct trading in ETFs.
• Investors comfortable bearing double-layered expenses (FoF and ETF costs) for the convenience and liquidity the FoF structure offers.