What must investors know about the ETFs in NPS? (Representative Image)

The Pension Fund Regulatory and Development Authority (PFRDA) has now allowed investments in gold and silver ETFs for subscribers of government-backed pension schemes like NPS, APY and UPS. It’s being seen as a significant transformation for the National Pension System (NPS) investment universe by financial experts.

As the precious metal continues to rise in the financial market and gains further prominence among investors, Thomas Stephen, associate director and head at Anant Rathi Stock Brokers, described PRFDA’s decision as a growth catalyst in an interview with NDTV Profit.

“For clients, this is an opportunity to diversify their asset classes. Though the exposure is capped, I think this is a brilliant move,” he told NDTV Profit. Stephen outlined the impact of the PFRDA’s decision on two distinct fronts.

Focus Away From Market Timing

According to Stephen, the move will impact the funds in a more holistic and structural way. “Now for the ETF markets, what this does is that it narrows the spreads and thereby boosts liquidity,” he said.

Coming to the retail investors, the head of Anant Rathi Stock Brokers urged them to shift their focus away from market timing. “The question is not about timing the entry or exit into the Silver ETFs; it is for investors to understand what portion of their portfolio they want to invest in silver,” the expert said.

Outlook On Silver

Given its unique and expanding industrial demand, the case for silver investment remains compelling. Amid “demand for EVs, electronics and potential continued global uncertainty, silver still has the potential to appreciate,” Stephen emphasised.

In contrast to the demand, however, the supply of silver is structurally constrained. “Silver comes as the byproduct of mining other metals,” Stephen explained. This contrast supports the metal’s price growth. Stephen says, “The demand cannot expand exponentially in short periods of time. This structural inelasticity supports for higher prices.”

Aware of the market fluctuations, Stephen issued a cautionary note to the investors by stressing, “Investments might be volatile, and corrections may come.”

“If the allocation has exceeded the intended portion, investors can book some profits,” Stephen said, suggesting that investors monitor their allocations as well.

Lastly, for those willing to stay put in the market for four or more years, Stephen advised, “they should invest via SIPs rather than a lump sum.”