Silver ETFs - Blooming Commodity Option for Diversification!

So far, gold was considered to be the best investment in times of crisis, however, the newly launched silver ETFs category is gaining tremendous attention due to its high returns. Many fund houses are launching silver ETFs for increasing diversification options for investors in commodities. Read on.

What is a Silver ETF?

Like gold ETFs, silver ETFs track the prices of silver. It invests its funds in physical silver or silver related instruments (not the stocks of mining silver or related business companies). Fund managers of a silver ETF buy physical silver and store them in secure vaults. The NAV (net asset value) of silver ETF is directly dependent on the price of silver.

With silver ETFs, you can easily trade in stock markets. Thus, if you invest in silver ETF shares of a particular value, you essentially own a quantity of silver that corresponds to that exact value.

Why Should you Invest in Silver ETFs?

Investing in silver through a silver ETF is considered to be a better, rather more advanced way of investing in commodities. As you can trade in silver ETF, you get the opportunity to take the benefit of any price fluctuation during the Market hours, which can’t be the case in physical silver investments.

With the ETF investment, you do not have to be worried about purity (as they are 99.99% pure), the cost of storage like locket rent as well as insurance premium. As the commodity is held in paper form in the Demat account the fear of theft doesn’t arise. Here, the fund house takes the entire responsibility for the purity of silver, storage and security.

Investing in commodities like silver and gold provides a hedge against Inflation. Silvers are considered to be safe havens during the economic crisis.

The Russia-Ukraine war has opened a new opportunity for investors as they are opting for safe-haven metals. Experts believe that due to fears of supply shortage, precious metals prices are blooming. Hence, both silver and gold are seeing prices rise.

Silver ETFs are also a great option to diversify your investment Portfolio as they depict low correlation with other asset classes.

Moreover, one can’t ignore the bright future of silver as there is increasing dependency on this precious metal, especially in futuristic technologies like 5G telecom, electric vehicles and green energy. With the higher demand, it is suggested to consider long-term Investment plan in silver.

Taxation of Silver ETF

Your investment in bullion, whether physical or electronic, becomes long term after 36 months. Any profit made on silver ETF will be taxed at 20% if held for more than 36 months. If you sell the silver ETF within 36 months of purchase, the profits made are treated as short term Capital Gain, which is taxed at your slab rates.

SEBI Rules of Silver ETF

Securities and Exchange Board of India (SEBI) paved way for silver ETFs in November 2021 by issuing operating guidelines for fund houses. Here’s are the regulations to be noted -

1. Tracking Error

A tracking error of 2% is permitted by SEBI. If it exceeds 2%, the fund house must mention the tracking error percentage on their portal. The tracking error is the difference between the returns of the scheme and that of an Underlying benchmark.

2. Silver Investment

A silver ETF scheme should invest at least 95% of the net asset value in silver and silver-related instruments. Exchange Traded Commodity Derivative (ETCD) is also considered a silver-related instruments, so fund managers can also invest in ETCD to meet their requirements.

3. Expenses Ratio

Since exchange tarded funds adopt a passive investment strategy, the fund manager does not actively select investments for the portfolio mix. Hence, this results in lower expenses towards management costs, therefore these funds attract a lower expense ratio. AMCs are most likely to charge around or below 0.5-0.6%.

4. Purity

According to London Bullion Market Association (LBMA) standards, AMCs must buy physical silver of 99.99% purity.

5. Exit Load

As silver ETFs are listed on the exchanges, they carry zero exit load.

How to Invest in Silver ETF in India?

• Step 1 – Open a Demat account with a reliable broker Offering you low brokerage and ease of transactions
• Step 2 – You will have to provide the necessary documents for registration
• Step 3 – To start trading, login to the Demat account and add funds
• Step 4 – Choose the silver ETF to buy and also select the number of units to purchase
• Step 5 – Place the order. Your account will debit for ETF trade and brokerage
• Step 6 – Demat account will be credited with the units of silver ETF

Silver ETF Schemes in India 2023

1. ICICI Prudential Silver ETF

ICICI Prudential Mutual Fund launched India’s first Silver ETF and the AMC is India’s second largest fund house in the country.

Investment Strategy

The scheme seeks to generate returns that are in line with the performance of physical silver in domestic prices, subject to tracking error.

Basics Details

2. Nippon India Silver ETF

The scheme seeks to generate returns that are in line with the performance of physical silver in domestic prices, before expenses, subject to tracking errors.

Basics Details

3. Aditya Birla Sun Life Silver ETF

The scheme seeks to generate returns that are in line with the performance of physical silver in domestic prices, subject to tracking error.

Basics Details

Final Words

As an investor, there are certain guidelines you must follow before investing in silver ETFs. First things first, you must consider your risk appetite, that is if you are a low-risk taker or high. Bullions are a bit risky as their price depends on demand and supply. One must also look for silver ETF with minimal tracking error.

By Rohini Hiremath

Rohini Hiremath works as a Content Head at Fincash.com. Her passion is to deliver financial knowledge to the masses in simple language. She has a strong background in start-ups and diverse content. Rohini is also an SEO expert, coach and motivating team head! You can connect with her at rohini.hiremath@fincash.com