Emergence of Silver ETFs - All You Need To Know

Silver ETFs is a financial vehicle that invest in physical silver or silver related instruments.
Meaning of Silver ETFs
3 min
09-May-2024

We live in an age that is marked by choices, whether you wish to place an order for food or add assets to your investment portfolio, you will find yourself faced with a plethora of options. Amongst the investment options available at your disposal is Silver ETFs or Silver Exchange Traded Funds.

Silver ETFs are exchange traded funds that invest in physical silver of a high degree of purity. Therefore, by investing in a Silver Exchange Traded Fund, you can invest in silver without having to physically purchase, store, and protect the metal. In this article, we shall delve into the workings, features, taxability, and regulatory framework surrounding Silver ETF funds in India.

How does Silver Exchange Traded Fund work?

The workings of Silver Exchange Traded Funds are fairly simple: the market prices of such funds are directly driven by the spot price of silver prevailing in the market. Whenever the spot price of silver fluctuates, the Net Asset Value of Silver ETFs also changes in response. Fund managers of Silver ETFs are required to purchase and safely store physical silver.

Should you wish to invest in a particular Silver ETF, you can purchase the required number of units from the exchange where it is listed and traded. By opting for Silver ETFs, not only do you get to invest in the precious metal and gain from appreciation in its market price, you do not have to invest in storage costs or insurance.

Features of Silver ETFs

In order to better understand Silver Exchange Traded Funds, let us discuss the salient features of such funds:

  1. Purity: Whilst purchasing physical silver, you may have to worry about its purity and be dependent on the seller's credibility. There are, however, no such concerns with Silver ETFs since such funds invest in 99.99% pure silver.
  2. Zero storage cost: Another striking feature of Silver ETFs is that you do not have to worry about the safekeeping or storage cost of physical silver. Such costs are borne by the fund managers while you get to enjoy a high degree of liquidity on your investment in silver.
  3. Hedge against Inflation: Since the value of precious metals such as gold and silver is relatively less susceptible to market volatility, investments in Silver ETFs can help protect you against inflation.
  4. Reduction in overall portfolio risk: By investing in Silver ETFs, you can add stability and balance to your investment portfolio and reduce your overall exposure to risk.

How are investments in silver exchange traded funds taxed?

While considering Silver Exchange Traded Funds as a potential addition to your investment portfolio, it is pivotal to understand their tax implications. The taxability of Silver ETFs is contingent upon your holding period of the instrument.

  1. Short term holding: If you hold your investment in a Silver ETF for less than three years, any gains made from the sale of said investment shall be added to your income. Termed as a Short term Capital Gain, such a profit shall be taxed in line with the income tax slab applicable to you.
  2. Long term holding: Should you hold your investment in a Silver ETF for a period exceeding three years and sell it afterwards, any gain thus made shall be considered a Long term Capital Gain and get taxed at 20%.

Also Read about the Income Tax Slabs of FY 2024-25 for taxation.

What should you consider before investing in a silver ETFs?

Now that we have discussed the taxability of Silver Exchange Traded Funds, let us turn our attention to the various key factors you must consider before investing in such a fund.

  1. Compare expense ratios: Different Silver ETFs carry varying expense ratios; the higher this ratio, the lower your overall return on investment. Therefore, you must study the expense ratios of various available Silver ETFs before arriving at your investing decision.
  2. Assess your risk appetite: Although investment in Silver ETFs is considered a low risk investment, the volatility in the prices of silver entails the presence of some degree of risk. You must take stock of your risk tolerance and accordingly make your investment decision.
  3. Consider tracking error: Another key factor you must account for is tracking error, that is, the difference between the returns on an ETF and its benchmark index. Choosing a Silver ETF fund with a high tracking error is not advisable.

SEBI regulations concerning silver ETFs

One of the factors that make Silver ETFs a relatively safe investment option is the fact that they are highly regulated. Since such funds are traded on listed exchanges, the concerned fund houses have to actively and consistently ensure compliance with the regulations of the Securities and Exchange Board of India (SEBI). Here are the key SEBI regulations pertaining to silver exchange traded funds.

  1. Purity of silver: Fund houses for Silver ETFs are required to purchase silver that is at least 99.99% pure. This is in accordance with the guidelines of the London Bullion Market Association.
  2. Maximum permissible expense ratio: The expense ratio for a particular Silver ETF cannot exceed 1% of the total Assets Under Management (AUM) of said fund.
  3. Minimum Investment in Silver: Silver ETFs’ fund houses are required to invest 95% or more of a particular fund's corpus in silver or silver-related investment instruments. In addition to physical silver, fund houses can also invest in Exchange Traded Commodity Derivatives.
  4. Tracking error: The tracking error for any Silver ETF must not exceed 2%. Should this variance be greater than 2%, fund houses must mandatorily disclose the fact on their official portals.

Conclusion

Investments in Silver ETFs are an excellent alternative to investing in physical silver. Not only do such investments offer you a high degree of safety and liquidity, but they also enable you to benefit from the upward movements in the prices of silver.

You can also choose to invest in mutual funds to diversify your investment portfolio. With over 1000+ listed mutual funds on the Bajaj Finserv platform, you can surely find some options which meets your investment needs. You can easily compare various mutual fund schemes and use our SIP calculator to decide your monthly investment amount.

Calculate your expected investment returns with the help of our investment calculators

Investment Calculator
SIP Calculator Lumpsum Calculator Step Up SIP Calculator
Mutual Fund Calculator Brokerage Calculator FD calculator

Frequently asked questions

Is there any ETF for silver?

Yes, there are several ETFs available for investing in silver for investors in India. These ETFs track the price of silver and offer investors a convenient way to gain exposure to the precious metal through the stock market.

Is Silver ETF taxable in India?

Yes, Silver ETFs are subject to taxation in India. Capital gains tax is applicable on the profit earned from selling Silver ETF units. 

Is it safe to invest in Silver ETF?

Investing in Silver ETFs may be considered safe as sompared to some other equity based ETFs due to their diversification benefits and ease of trading. Compared to physical silver, Silver ETFs offer liquidity and no risk of impurities, maintenance, or storage expenses, theft or damage. However, investors should be aware of market fluctuations and conduct thorough research before investing.

Is it better to buy physical silver or ETF?

The decision between buying physical silver or investing in a Silver ETF depends on individual preferences and investment goals. Physical silver offers tangible ownership but involves costs like storage and insurance. On the other hand, Silver ETFs provide convenience, liquidity, and diversification, making them suitable for investors seeking exposure to silver without the hassle of owning physical assets.

Show More Show Less

Bajaj Finserv app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Explore and apply for co-branded credit cards online.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on No Cost EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.