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Below is Comment on SEBI guidelines for Silver ETF By Mr. Chirag Mehta, Sr. Fund Manager-Alternative Investments, Quantum Mutual Fund

* Capping gross exposure to 100% helps as it will keep risks contained.

* While LBMA Silver daily spot fixing price has been chosen as the benchmark for Silver ETFs, the same hasn’t been stipulated for the valuation of the fund’s assets where the ask is to ascertain the fair market value which would largely be the price operational in the domestic physical markets. Many times there is a disparity between the LBMA equivalent Indian rupee denominated silver prices and domestic prices of silver in Indian markets. This differential might result in higher tracking error which is nothing but an anomaly in comparison. Silver prices for both benchmark and valuation should be aligned.

* Indicative NAVs of Silver ETFs that need to be disclosed on Stock Exchange platforms on continuous basis during the trading hours are better provided to the exchanges by independent 3^rd party agencies appointed by the fund instead of the fund houses. A similar framework is followed in other markets like the US as well where this is prevalent. The Indian eco system currently lacks presence of such entities.

* SEBI has proposed the appointment of a dedicated fund manager for commodity-based funds like Gold ETFs and Silver ETFs. We believe that since these products are passively managed there isn’t a need for a dedicated fund manager or to put it aptly the list of funds should not be restrictive to commodity funds only for that fund manager. However, we do buy the argument that such fund manager should have adequate knowledge and understanding of the commodity markets.

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