SEBI Issues Operating Norms for Silver Exchange Traded Funds

Market regulator Securities and Exchange Board of India (SEBI) has notified amendments to the MF Regulations for a regulatory mechanism on Silver Exchange Traded Funds (Silver ETFs). 
 
SEBI said these changes will come into force on the 30th day from the date of their publication in the official gazette. The new norms will help investors make an informed decision about their investment in such a commodity in a transparent manner.
 
SEBI has said for Silver ETFs, the investment objective of funds will be to generate returns in line with the performance of physical silver in domestic prices, subject to tracking error.
 
A Silver ETF Scheme will invest at least 95% of the net assets of the scheme in silver and silver-related instruments.
 
The Exchange Traded Commodity Derivatives (ETCDs) that have silver as the underlying, will be considered as "silver related instrument" for silver ETFs. 
 
The exposure to such ETCDs will not exceed 10% of the net asset value of the scheme. The above limit of 10 per cent will not apply to silver ETFs where the intention is to take delivery of the physical silver and not to roll over its position to the next contract cycle.
 
The cumulative gross exposure of Silver ETFs will not exceed 100 per cent of the net assets of the scheme.
 
The total expense ratio applicable for Silver ETF schemes will be the same as the TER applicable for other ETFs.
 
The NAV of Silver ETFs, which will be calculated up to four decimal points, will be disclosed on daily basis on the AMC website. Silver ETF Scheme(s) will be benchmarked against the price of silver (based on LBMA silver daily spot-fixing price).
 
The AMC will appoint authorised participants (APs) or market makers (MMs) to provide liquidity for the units of silver ETFs in the secondary market on an ongoing basis. APs or MMs and large investors may directly buy or sell units with the mutual fund in creation unit size.
 
Along with the disclosure of tracking error, silver ETF schemes will also disclose the tracking difference i.e. the difference of returns between physical silver and the Silver ETF on the AMC website monthly for tenures 1 year, 3-year, 5-year, 10-year and since the date of allotment of units.
 
To enable the investors to make an informed decision, the Scheme Information Document of Silver ETFs will disclose tracking error and tracking difference, market risk due to volatility in silver prices, liquidity risks in physical or derivative markets impairing the ability of the fund to buy and sell silver, risks associated with handling, storing and safekeeping of physical silver; and tax provisions.
 
For commodity-based funds such as Gold ETFs, Silver ETFs and other funds, a dedicated fund manager with relevant skill and experience in the commodities market will be appointed to manage the fund. However, a dedicated fund manager for each commodity-based fund is not mandatory.
 
The physical verification of silver underlying the Silver ETF units will be carried out by the statutory auditor of the mutual fund and will report the same to trustees on half yearly basis.
 

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Changes in Our Business Model
 
 
25th Sept 2020
 
Greetings from Moneylife Advisory Services
 
Between financial years 2019-21, SEBI has come up with extensive changes to investor advisor regulations. On Sep 23, 2020, SEBI had issued new additional guidelines. This comes just two months after extensive changes announced in July 2020. Earlier, in December 2019 there was an ad hoc circular
 
As a result of these changes, IAs, cannot accept fees through credit cards, will have to sign a 26-clause investor agreement, have to maintain physical record written & signed by client, telephone recording, emails, SMS messages and any other legally verifiable record for five years. IAs were already asked to record the suitability and rationale for every piece of advice given, sign them and store them for five years.
 
While these extensive and frequent changes, designed to strengthen the conduct of IAs are well-meaning, these have sharply increased compliance efforts and cost. We, being online advisors, find many of changes harder to implement, compared to advisors working in the physical space. We will have to have an army of advisors, administrative and tech staff to be compliant. If we do this, we will have to divert money to these areas and the cost of our service will double. We want to remain the least-cost service in the market to benefit more and more people. In the circumstances, we are forced to change our business model from “advisory” to “research”. This will mean the following:
 
What remains the same:
  • Recommendations on insurance, investment and Lion stocks, will continue as a part of the MAS premium subscription. Our strength has always been research and this will remain available to you through our recommendations.
  • The magazine and all textual content will remain as part of the service
  • We will have to suspend the restructuring tool.
 
What changes:
  • The interactions in Ask / Handholding will offer investment advice but not specific to your situation. It will offer information on investment products and also clarify your doubts about various financial products. It will be a forum for information, not for advice. This will be implemented with immediate effect and our guidelines in Ask, reflect this now.
 
Over the next few weeks our site and our communication to you will reflect these and other additional changes.
 
We feel this will not affect you much in terms of what really matters in investing: knowing what to buy and when to buy. This is our edge and it will still be available to you.
 
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Debashis Basu
Founder