What Are Silver ETFs? Features, How To Invest, Taxation And More — Explained

Silver stands apart as both a precious metal and a vital industrial commodity with wide applications. For investors in India looking to diversify their holdings, Silver Exchange Traded Funds (ETFs) provide an efficient route to gain exposure to the metal. Introduced in 2022, these funds offer a convenient, paper-based alternative to owning physical silver, combining accessibility with the ease of trading on the stock exchanges.

Silver ETFs are mutual fund schemes that invest in physical silver or instruments linked to silver prices. Regulated by the Securities and Exchange Board of India (SEBI) under the mutual fund framework, these funds ensure a transparent and well-governed investment structure. Much like equities, Silver ETFs are listed and traded on recognised stock exchanges, allowing investors to buy and sell units with ease.

These ETFs mirror the movement of domestic silver prices, adjusted for costs such as storage, insurance, and fund management. By investing in Silver ETFs, people can benefit from silver’s price performance without the hassle of owning, storing or safeguarding the physical metal.

The aim of Silver ETFs is to earn returns in line with the market performance of silver, with minor tracking errors. Net Asset Value (NAV) of Silver ETFs fluctuates in sync with the price of silver. After being listed on the stock exchanges, units of Silver ETFs can be bought or sold by investors through the trading day, just like shares.

Purity: Investors need not be concerned about the quality of silver held by the fund. The physical silver bought by fund managers is at least 99.99% pure and securely stored in vaults.

Hedge against inflation: Silver tends to perform well during inflationary periods, making it a valuable hedge in times of economic uncertainty.

No storage costs: By investing through ETFs, investors avoid the costs and logistical challenges of storing physical silver.

Reduced portfolio risk: Including silver ETFs in an investment portfolio can help diversify assets, thereby reducing overall risk exposure.

Select a fund that best aligns with your investment objectives and tracks domestic silver prices.
Open an account with a brokerage that allows ETF trading.
Buy units of the Silver ETF through your trading platform, similar to buying shares.
Monitor silver price trends and check your holdings from time to time.

Silver ETFs are considered investment in debt securities for tax purposes. If the holding period is over 36 months, gains are long-term capital gains and taxed at 20% flat rate with benefit of indexation. If held for less than 36 months, the gains are considered short-term and taxed as per the investor’s applicable income tax slab.

Volatility: Silver prices can be unpredictable, and the value of ETFs will reflect these fluctuations.
Management fees: Silver ETFs levy management charges, which can slightly affect returns.
Market conditions: Silver’s performance is influenced by multiple factors, including global supply-demand dynamics, geopolitical tensions, and macroeconomic trends.