Silver Exchange Traded Funds

Silver exchange traded funds (ETFs) have been top performers in 2024, with a notable gain of 19.7% this year. In the past three months alone, they have increased by nearly 21%, making them one of the best performing asset classes in the market.
Silver ETF
3 min
24-June-2024

Silver, revered alongside gold, holds a special place in Indian culture, often purchased during significant festivals such as Deepawali, Dhanteras, Ugadi, and the New Year. It is commonly chosen for gifts, particularly for young children, and for crafting decorative items such as deity figurines. In global markets, silver is recognised as a viable investment class. While Gold ETFs have been a part of the Indian market for years, Silver ETFs are a relatively new addition. This article will explore the advantages of Silver ETF funds over physical silver for investment purposes.

Traditionally, Indians have preferred silver in physical forms like jewellery, bars, and coins. Although perfect for ornamental use, physical silver poses several challenges for investors. Impurities are a common issue with physical silver, diminishing its resale value. Silver jewellery and coins often require regular upkeep, including polishing, to maintain their lustre. Additionally, the bulkiness of silver relative to its economic value results in higher storage costs, often surpassing those of gold. This article delves into why silver, as an asset class, merits consideration for investment, particularly through Silver ETFs.

What are silver exchange traded funds?

Investing in a Silver ETF offers a more cost-effective and hassle-free alternative to owning physical silver. These exchange traded silver funds eliminate concerns such as impurities, maintenance, and storage costs, making them not only more convenient but also potentially more liquid and cost-efficient than physical silver.

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How does silver ETFs fund work?

The silver exchange traded funds either invest directly in physical silver or in silver-related financial instruments. Under SEBI guidelines, Silver ETFs in India are permitted to invest in physical silver bars of 30 kg with a fineness of 999 parts per thousand (99.9% purity), adhering to the London Bullion Market Association (LBMA) Good Delivery Standards. Additionally, SEBI permits these ETFs to allocate up to 10% of their Net Asset Value (NAV) in Exchange Traded Commodity Derivatives (ETCDs) with silver as the underlying asset, considering the potential higher costs of rolling over such investments.

Also, silver ETFs offer investors a convenient way to invest in physical silver through lumpsum investments, which can be made with a minimum amount of Rs. 5,000, or through systematic investment plans (SIPs) with a minimum investment of Rs. 100 per month

Features of silver ETFs

Silver ETFs boast several distinctive features that cater to a diverse range of investment needs:

  • Market accessibility: Silver ETFs provide investors with the ability to gain exposure to real-time silver prices without the need for physical storage or dealing with the complexities of futures contracts.
  • Cost-effectiveness: These funds typically have lower fees compared to other forms of silver investment, such as mutual funds or the direct purchase of silver, reducing the barrier to entry for investors.
  • Liquidity: Shares of silver ETFs are traded on major stock exchanges, ensuring high liquidity which allows investors to enter and exit positions quickly and efficiently.
  • Hedging Capabilities: Silver ETFs serve as an excellent tool for hedging against inflation and currency depreciation, maintaining purchasing power in volatile economic conditions.
  • Portfolio diversification: By incorporating silver, a tangible asset with intrinsic value, into their portfolios, investors can reduce risk through diversification, potentially enhancing overall returns.

Benefits of investing in silver ETFs

Investing in silver ETFs offers several advantages:

  • Ease of trading—like stocks, these ETFs can be bought and sold during trading hours, offering convenience and flexibility
  • Cost efficiency—they typically incur lower costs than buying physical silver, avoiding storage and insurance fees
  • Market accessibility—investors get exposure to the silver market without dealing with commodities trading complexities
  • Diversification—silver can diversify a portfolio, potentially reducing risk and increasing stability during market volatility
  • Inflation hedge—silver has historically served as a hedge against inflation, preserving purchasing power in uncertain economic times.

These benefits make silver ETFs an attractive option for both seasoned and novice investors looking to expand their investment horizons.

How to invest in silver ETFs?

Investing in Silver ETFs is straightforward: start by opening a brokerage account if you do not have one already. Once your account is set up, research the various Silver ETF options available to find one that suits your investment goals and risk tolerance. After selecting a silver exchange traded fund, you can purchase shares through your broker just like you would with stock, using the ETF’s ticker symbol. It's essential to monitor the performance of your investment as part of your broader portfolio strategy to ensure it aligns with your long-term financial objectives. By investing in Silver ETF funds, you gain exposure to silver prices without the complexities of handling physical silver, making it an efficient and accessible option for diversifying your investments.

How can you buy silver ETFs?

Buying Silver ETFs is a simple process that mirrors the acquisition of stocks. First, you'll need to set up a brokerage account with any reputable broker; once your account is active, you can login and search for the specific Silver ETFs you're interested in. These ETFs are identified by their ticker symbols, which you can find through basic market research or financial news platforms. After selecting a Silver ETF, you decide on the number of shares you wish to purchase and execute the order during the trading hours of the stock exchange where the silver exchange traded funds are listed. It’s also wise to keep an eye on market trends and consult financial advisories to make informed decisions. This method offers a hassle-free way to invest in silver, allowing you to benefit from its market movements without the need to physically own or store the metal.

How can you sell silver ETFs?

Selling Silver ETFs is as straightforward as buying them. To start, you need to log into your brokerage account where you hold the ETF shares. Navigate to the trading section, and enter the ticker symbol of the Silver ETF you want to sell. Specify the number of shares you wish to offload and choose your desired type of sell order—such as a market order, which sells at the current market price, or a limit order, which sets a minimum price you're willing to accept. Once you confirm and execute the sale, the transaction typically settles in a couple of business days, and the proceeds are deposited into your brokerage account. This process provides an efficient and effective way to convert your silver investments back into cash, enabling you to react swiftly to changes in the market or shifts in your financial goals.

Taxation of silver ETF

The taxation of Silver ETFs can be an important consideration for investors. Silver ETFs are treated as debt in India and long-term capital gains (LTCG) of 20% is levied on debt investments held for more than 3 years (36 months). If sold before 36 months, short-term capital gains (STCG) apply and taxation is as per the investor’s respective tax slab. These rates are as per the Income Tax Act of India, and you can find more detailed and updated information on the official Income Tax Department of India's website.

Additionally, it’s crucial to check whether any dividends received from the ETF are subject to income tax. Investors should consult a tax professional to understand the precise implications and ensure compliance with local tax regulations, enabling them to plan their investments in Silver ETFs more effectively and optimise their returns after taxes.

Conclusion

In conclusion, investing in Silver ETF funds offers a practical and efficient way to add the lustre of silver to your investment portfolio without the hassle of handling physical silver. These silver exchange traded funds provide liquidity, ease of trading, and potential tax advantages, making them an attractive option for diversifying investments and hedging against economic uncertainty. However, like any investment, it's important to conduct thorough research and consider market conditions, investment goals, and personal risk tolerance. Consulting with a financial advisor can also help tailor your approach to include Silver ETFs in a way that aligns with your overall financial strategy, ensuring you navigate the complexities of the market with a well-informed plan.

The Bajaj Finserv Mutual Fund Platform serves as an essential resource for individuals navigating investment intricacies or contemplating building endowments. Offering access to a wide array of over 1000 mutual fund schemes, it caters to diverse investment goals and strategies. More than just a fund management tool, the Bajaj Finserv Platform acts as a collaborative partner, equipped to provide expert guidance and support at every stage of the investment journey, ensuring a meaningful impact.

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Frequently asked questions

Which Silver ETF is best?
The "best" Silver ETF funds depends on your investment goals and risk tolerance. Popular options like are favored for high liquidity and market size, aligning well with those seeking straightforward exposure to silver prices.
How can I buy Silver ETF in India?
To buy a Silver ETF in India, open a brokerage account with a firm that offers access to Indian stock exchanges like the BSE or NSE. Once the account is active, you can purchase Silver ETFs.
What is the average return of Silver ETF?
The average return of Silver ETFs can vary widely based on market conditions and the time frame considered. Historically, these returns can fluctuate significantly, often mirroring the volatility seen in global silver prices, which are influenced by economic, industrial, and geopolitical factors.

Is Nippon Silver ETF a good investment?
Nippon Silver ETF can be a good investment if you are looking to diversify into precious metals and hedge against inflation. However, like all investments, it carries risks and its performance will depend on silver price movements and market conditions. Always consider your investment horizon and risk tolerance.

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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.