Silver ETFs - Silver ETFs vs Gold ETFs

Gold and silver have reserved their emotional and financial significance in the minds of Indian investors for decades. Besides their ornamental purpose, they are used widely as a tool to hedge the risks of inflation and volatility in equity markets. 

Besides being an investment tool, silver is also in demand for its industrial usage. It is used in the manufacturing of electronics, electric vehicles, etc. Silver ETFs are poised to make their mark as a lucrative investment option slowly but surely. 

What are Silver ETFs?

A Silver ETF is an ETF (Exchange Traded Fund) scheme that invests its fund in silver and silver-related instruments. 

Silver ETF is a relatively better and more advanced form of investing in silver as it conveniently filters out the problems that arise from investing in physical silver. With this investment, you do not have to be worried about purity or storage, or insurance concerns and they are more liquid than physical silver, as you can easily trade it on 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.

The funds collected by a Silver ETF scheme are used to buy physical silver that is stored in vaults. This ETF tracks the price of physical silver. It does not hold stocks of any silver mining company or other such related business.

Additional Read: What are ETFs

How Does a Silver ETF Work?

Imagine that you are able to own silver without the headache of storing it yourself! Silver ETFs are funds that enable one to invest in the price of silver just by buying shares on a stock exchange. A silver ETF is basically holding real silver or positions in futures contracts to track the price of silver. As silver prices go higher, so does the ETF's share price. 

What are the features of Silver ETFs?

• Price Tracking: Silver ETFs track the current market prices of silver. When the price goes up, an ETF typically rises in value and, correspondingly, falls in value when the underlying silver price drops.

• Liquidity: They are traded on stock exchanges like stocks; hence they can be easily purchased and sold. This liquidity allows one to enter or exit positions quickly.

• Diversification: An investment in a Silver ETF helps diversify an investment portfolio. The price movements of silver are not necessarily correlated to other asset classes.

• Cost: The management fees of ETFs usually stand below other available investment options. They dispense investors from the payment of storage and insurance costs associated with physical silver.

• Accessibility: It offers silver exposure to investors with smaller capital because of the possibility of fractional share purchase opportunities.

• Transparency: For the most part, Silver ETFs are completely transparent; that is, investors know exactly what they are investing in.

How to Invest in Silver ETFs?

Investing in Silver ETFs is as easy as investing in stocks. You only need to have a Demat account and Trading account to start your investment here. A registered broker can open these accounts for you if you do not have them.

Taxation of Silver ETFs

Taxation on silver ETFs is quite different from that for stocks. Selling for profit within three years from the date of purchase attracts short-term capital gains taxation at rates as high as your personal income tax bracket. But if you hang on for more than three years, you will pay the lower long-term capital gains tax rate.

What are the Rules for Silver ETF set by SEBI?

• Silver Focus: Invest in at least 95% physical silver or silver-related instruments.

• Physical Silver: Must be good quality bars (99.9% pure) meeting global standards.

• Silver Derivatives: Limited use (max 10%) allowed with a written plan approved by regulators.

• Track Silver Price: Aim to mirror domestic silver price performance.

• Transparency: Regular disclosure of holdings and performance.

Gold ETFs Vs Silver ETFs: Are Silver ETFs More profitable than Gold ETFs?

Additional Read: What is Gold ETF?

Conclusion

Even though Gold and Silver belong to the commodity asset class, there is no single answer for which is the more superior investment in ETFs. But, one thing is certain - every additional investment tool will help in diversifying your portfolio and making it more wholesome from the perspective of exposure. You should, however, be careful not to overinvest in any single commodity and cap your asset allocation according to the level of risk you are willing to take and your investment objective.