Groww Silver ETF - Direct (G): NFO Details

Investment Objective and Strategy

Objective:

The investment objective of the scheme is to generate returns corresponding to the Domestic Price of Physical Silver before expenses, subject to tracking errors, fees and expenses by investing in Physical Silver. 

There is no assurance or guarantee that the investment objective of the scheme would be achieved.

Investment Strategy:

Groww Silver ETF is designed to provide investors with a convenient and cost-effective means to gain exposure to silver, a precious metal known for its dual role as both an industrial commodity and a store of value.

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Risk Associated with the Groww Silver ETF - Direct (G)

Investing in the Groww Silver ETF, while offering diversification and inflation hedging benefits, also comes with a set of risks that investors should consider carefully:

Commodity Price Volatility: Silver prices are highly volatile due to factors like industrial demand, geopolitical tensions, inflation expectations, and monetary policy changes. These fluctuations can significantly affect the NAV of the ETF, potentially leading to unpredictable short-term losses.

Tracking Error: Although the fund aims to mirror the price of silver, it may not perfectly replicate it. Tracking error can arise from fund expenses, cash holdings, or imperfect correlation between the ETF's assets and the underlying commodity.

Liquidity Risk: While ETFs are generally liquid, liquidity can be an issue during volatile market periods. If there's low trading volume in the ETF or in the underlying commodity market, investors may face difficulty buying or selling units without affecting the market price.

Regulatory Risk: Changes in government policies, tax laws, or SEBI regulations related to commodity trading or ETFs could impact fund operations or investor returns.

Storage and Custody Risk: Since the ETF holds physical silver, there is a custodial risk despite regulatory safeguards. Issues related to storage, insurance, or physical handling—although rare—can affect the safety of the fund’s assets.

Currency Risk: Silver is globally priced in U.S. dollars. Even though the ETF is INR-denominated, fluctuations in the INR-USD exchange rate can impact returns, especially during periods of currency depreciation.

Concentration Risk: As a single-asset ETF, it lacks diversification across asset classes. Any adverse movement in silver prices can disproportionately affect overall returns.

What are the Risk Mitigation Strategies of Groww Silver ETF - Direct (G)?

Investing in the Groww Silver ETF – Direct (G) offers a structured approach to gaining exposure to silver, while incorporating several strategies to mitigate associated risks. Here's how the fund addresses potential challenges:

1. Regulatory Compliance and Oversight

SEBI Guidelines: The fund adheres to the Securities and Exchange Board of India's (SEBI) regulations, which mandate that at least 95% of the fund's assets be invested in silver and silver-related instruments. This ensures a high correlation with silver prices and limits exposure to unrelated assets.

Tracking Error Limitation: SEBI requires that the tracking error—the difference between the fund's returns and the benchmark—be maintained within 2%. If it exceeds this threshold, the fund must disclose the tracking error percentage on its portal, promoting transparency. 
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2. Investment in High-Purity Physical Silver

Purity Standards: The ETF invests in physical silver with a minimum purity of 99.99%, as per London Bullion Market Association (LBMA) standards. This reduces the risk of impurity-related losses and ensures the quality of holdings. 

Secure Storage: The physical silver is stored in SEBI-approved vaults, minimizing risks associated with theft or damage. 

3. Passive Investment Strategy

Expense Ratio Cap: The fund employs a passive investment strategy, aiming to replicate the performance of silver prices rather than outperform them. This approach results in a lower expense ratio, capped at 1% as per SEBI regulations, making it a cost-effective option for investors seeking silver exposure.

4. Liquidity and Transparency

Exchange Listing: Being listed on major stock exchanges, the ETF offers high liquidity, allowing investors to buy or sell units during trading hours at prevailing market prices. 

Regular Disclosures: The fund provides regular updates on holdings and performance, enabling investors to make informed decisions.

5. Diversification Benefits

Including silver in an investment portfolio can act as a hedge against inflation and currency fluctuations. Silver often exhibits low correlation with traditional asset classes like equities and bonds, providing diversification benefits.

6. Tax Efficiency: Capital Gains Taxation

As per the latest tax regulations effective from April 1, 2025, long-term capital gains (LTCG) on silver ETFs held for more than 12 months are taxed at 12.5% without indexation benefits. Short-term capital gains (STCG) for holdings less than 12 months are taxed as per the investor's income tax slab. This favorable tax treatment enhances post-tax returns for long-term investors.