Silver mutual funds down 4% in one month. What should investors do?

Silver funds are under the spotlight. After dazzling investors with impressive returns in the one year, these schemes that track the precious metal are down 4% in one month. Silver funds occupied the top place in the return chart with 10% returns in three months. Silver funds offered 21% in one year, taking the fourth place in the performance chart after banking, psu sector, and infrastructure funds. Should investors be bothered about the recent weakness in the precious metal fund? More importantly, can investors use the opportunity to get into these funds to maximise returns?

Silver funds are a new entrant to the mutual fund market. There are 12 schemes in the category, including ETFs and FOFs. The topper in the category, Aditya Birla Sun Life Silver ETF, offered around 25.02% in the last one year.

If you are new entrant to the commodity markets, you have to keep in mind that apart from the macroeconomic conditions, demand and supply play an important role. For example, just like the stock market commodities are also influenced by the interest rate scenario, recessionary fears, debt ceiling in the US, among others. Then finally everything boils down to the demand supply. According to commodity analysts, precious metals like gold and silver are likely to do well as many investors will soften the blow on their equity and debt portfolio by diversifying their portfolio to commodities. Silver has industrial applications and economic weakness may drag the prices down. However, the overall scenario continues to be positive for silver. In short, silver may offer better returns this year, add analysts.

However, they say that investors should not get into these funds with an eye on short term returns. One, commodities like gold and silver may not offer attractive returns year after year. These schemes should be used only as part of your diversification strategy. Two, if you are new, gold funds may be a better bet. Three, invest only a small part of your portfolio in commodity funds. Most mutual fund advisors ask investors with a large corpus to invest 5-10% of their portfolio in commodities via mutual funds.