Why Invest in Silver ETFs? Explore Best Silver ETFs in India With High Returns.
Are you looking for a smart and hassle-free way to invest in silver? Look no further than silver ETF!
These exchange-traded funds allow you to invest in the white metal without having to deal with the physical hassle of buying and storing it. With low expense ratios and high liquidity, silver ETFs are becoming an increasingly popular investment option for both novice and seasoned investors.
In this blog, we’ll dive into the world of silver ETFs, exploring what they are, how they work, and the benefits and risks of investing in them. Moreover, we will also tell you the step by step process of how you can invest in stocks or ETFs via smallcase.
What is Silver ETF?
Silver ETF, or Silver Exchange-Traded Fund, is a type of exchange-traded fund that invests primarily in physical silver, futures contracts, or silver mining stocks. It provides investors with a way to gain exposure to the silver market without having to physically own or store silver.
Silver ETFs are traded on stock exchanges like shares, and their prices fluctuate throughout the trading day. One of the benefits of investing in silver ETFs is that they offer investors a cost-effective way to invest in silver, as they typically have lower expenses compared to actively managed funds.
How does a Silver ETF work?
A silver ETF, or exchange-traded fund, is an investment vehicle that tracks the price of silver. It is structured as a fund that is listed on a stock exchange and trades like a stock. The value of the ETF is determined by the price of silver.
The ETF is designed to track the price of silver through the use of derivatives, such as futures contracts or swaps. The ETF issuer purchases these derivatives to obtain exposure to the price of silver.
It also has a creation and redemption mechanism that allows for the creation or redemption of shares. This means that authorized participants can create new shares of the ETF by depositing a specified amount of silver into the fund. Similarly, authorized participants can redeem shares by exchanging them for the underlying silver held by the ETF.
Types of Silver ETFs
There are two main types of Silver ETFs: physically-backed and futures-based.
1. Physically-Backed Silver ETF
Physically-backed silver ETFs are backed by physical silver bullion and aim to track the spot price of silver. The ETF buys and stores the physical silver, and issues shares that are backed by the silver holdings.
2. Futures-based Silver ETFs
These ETFs invest in silver futures contracts instead of physical silver. These ETFs aim to track the price of silver by investing in silver futures contracts that have a specified expiration date. The ETF rolls over these contracts as they expire to maintain its exposure to the price of silver.
How to Invest in Silver ETF in India?
At this point, you might be wondering how to buy Silver ETFs in the Indian stock market. Well, look no further. Investing in silver ETF fund is a simple process. Here are the steps you need to take to buy Silver ETF:
1. Choosing a broker: The first step to invest in a silver ETF is to choose a broker. Ensure that the broker you choose allows trading in ETFs and has a good reputation. Some popular brokers in the market include Robinhood, TD Ameritrade, E-Trade, etc.
2. Selecting the appropriate Silver ETF: There are several silver ETFs available in the market. You need to choose the one that best fits your investment goals and portfolio. Look for factors such as expense ratio, assets under management, liquidity, etc., before making a decision.
3. Placing an order: Once you have chosen the silver ETF you want to invest in, place an order through your broker. You can choose to invest a lump sum amount or invest through a systematic investment plan (SIP). The process of placing an order may vary slightly from broker to broker, but it is usually a straightforward process.
List of Popular Silver ETFs
Here’s the list of popular silver ETFs for you to invest in 2023.
| Serial No. | Popular Silver ETFs |
| 1. | Nippon India Silver ETF – Growth |
| 2. | Kotak Silver ETF FoF Regular |
| 3. | UTI Silver ETF – Growth |
| 4. | UTI Silver ETF FoF Regular – Growth |
| 5. | ICICI Prudential Silver ETF – Growth |
How to invest in ETFs via smallcase?
On smallcase you can also find baskets of ETFs (besides stocks) that aim to achieve a particular investment objective or theme, such as dividend income, high-growth companies, or a specific industry sector. The platform enables investors to buy and sell expert-made stock portfolios easily and efficiently, with low fees.
With the help of smallcase, you can easily invest in stocks or ETFs by following the steps mentioned below:
- Choose a portfolio
- Subscribe to the manager
- Invest and chill!
So, what are you waiting for? Download the smallcase mobile app today to kickstart your ETF investment journey.
Who Should Invest in Silver ETFs?
Investors seeking diversified portfolios should consider Silver ETFs. These funds provide exposure to silver, making them ideal for those wanting to participate in the market. With 99.99% purity backing, they offer relatively low-risk investment opportunities, catering to those seeking stability.
Silver ETFs not only mitigate storage risks and costs associated with physical silver but also prove more tax-efficient. This makes them attractive for investors aiming to earn returns while minimizing tax liabilities. Tracking silver prices in real-time, these ETFs are suitable for investors keen on monitoring their silver investments dynamically.
Regulations on Silver ETFs by SEBI
SEBI has established key guidelines for silver ETFs, encompassing various aspects:
- Investment Requirements: To comply with SEBI regulations, fund houses are obligated to invest a minimum of 95% of the total corpus in silver and silver-related instruments. Exchange-traded commodity derivatives are also considered acceptable investment in silver ETFs for meeting this criterion.
- Tracking Error Limit: Fund houses must maintain the tracking error—representing the variance between scheme returns and an underlying benchmark—within a 2% range. If it exceeds this threshold, the fund houses are required to disclose the tracking error percentage on their portal.
- Expense Ratio Cap: SEBI mandates that fund houses limit the expense ratio to a maximum of 1% of the Silver ETF scheme’s assets under management. This ratio, charged by fund houses to cover operational expenses, is designed to ensure investor fairness.
- Purity Standards: Adhering to London Bullion Market Association (LBMA) standards, fund houses must procure physical silver with a minimum purity of 99.99%. This stringent requirement aims to guarantee purity and mitigate the risk of fraud in silver ETF India investments.
Factors Affecting Silver ETF Share Price India
There are several factors that can impact the best silver ETF share price in India. Some of them are as follows:
- Silver prices: Since silver ETFs are designed to track the price of silver, the primary driver of their share price is the spot price of silver. When silver prices rise, the silver ETF price will typically rise as well, and vice versa.
- Supply and demand: The price of silver is also influenced by supply and demand factors. For example, if demand for silver rises due to increased industrial or investment demand, the price of silver and silver ETFs may increase as well.
- Currency fluctuations: Since silver is traded globally, currency fluctuations can also impact the price of best silver ETF shares. For example, if the US dollar strengthens relative to other currencies, the price of silver and silver ETFs may decline, as it becomes more expensive for foreign investors to buy.
- Global economic conditions: Silver is often seen as a safe-haven asset during times of economic uncertainty or market volatility. As a result, global economic conditions, such as inflation or geopolitical events, can impact the demand for silver and silver ETF share price.
Apart from this, it is important to note that silver ETF returns may also be impacted by factors such as management fees, transaction costs, and taxes. Hence, before investing, closely monitor the price of silver and keep an eye on any macroeconomic or geopolitical factors.
Features of Silver ETFs in India
Here are a few key features of Silver EYFs in India:
- Purity Assurance: Investors in silver exchange-traded funds benefit from the assurance of high purity. The physical silver acquired by fund managers is at least 99.99% pure and securely stored in vaults.
- Inflation Hedge: Commodities like silver serve as effective hedges against inflation. In times of crisis, silver emerges as a prudent investment choice, aligning with its historical performance.
- Cost-Efficient Storage: Investors using silver-based ETFs sidestep storage expenses. Fund managers utilize the investment corpus to purchase silver, with storage and security falling under the responsibility of the fund house.
- Portfolio Risk Reduction: Diversifying portfolios by incorporating low-risk assets such as silver and gold helps minimize overall risk exposure. This strategic approach enhances the stability of the investment portfolio.
Benefits of investing in Silver ETFs
Investing in silver ETFs offers a variety of benefits that are attractive to investors. Some of them are as follows:
- Easy to trade: Silver ETFs can be easily bought and sold on stock exchanges during trading hours, just like individual silver shares. This makes them a convenient and accessible investment option.
- Low expense ratios: Compared to actively managed funds, silver ETFs typically have low expense ratios. This is because they are designed to track the price of silver and require less management, resulting in lower fees.
- Diversification: Investing in silver ETF fund allows for diversification in an investor’s portfolio, as the ETFs hold a basket of silver assets. This diversification reduces the risk associated with investing in a single silver asset.
- Liquidity: Due to their easy tradability on stock exchanges, silver ETFs offer high liquidity. Hence, you can buy and sell these ETFs at market prices throughout the trading day, making them a highly liquid investment option.
Risks of investing in Silver ETFs
Investing in silver ETFs can be a lucrative investment strategy, but there are also risks associated with it that you should be aware of. Here are some of the key risks of investing in silver ETFs:
- Price volatility: Silver prices can be volatile, and as a result, silver ETF price can experience significant fluctuations. These fluctuations can be caused by a variety of factors, including global economic conditions, geopolitical events, and changes in supply and demand.
- Counterparty risk: Silver ETFs are generally backed by physical silver held by a custodian. However, there is still some counterparty risk involved in holding these ETFs. If the custodian were to experience financial difficulties, there is a risk that the ETF shares could become worthless.
- Tax implications: Depending on an investor’s country of residence, there may be tax implications associated with investing in silver ETFs. Hence, consult with a tax professional to understand the tax implications of investing in silver ETFs.
Tax Implications on Silver ETFs
Silver, viewed as a capital asset, is categorized akin to debt securities. Holding silver for over 36 months results in long-term capital gains tax at a fixed rate of 20%. Conversely, if the holding period is under 36 months, gains are deemed short-term capital gains and are subjected to taxation based on the applicable income tax slab.
Gold ETFs vs Silver ETFs
Here is a table of comparison between the two investment options- Gold ETFs and Silver ETFs:
| Aspects of Comparison | Gold ETFs | Silver ETFs |
| Drivers of Demand and Prices | Acts as a tool to beat equity market volatility Extensively used for jewelry making | High demand in the automobile and electronics industries Correlated with economic growth and inflation hedge Higher correlation with the equity market |
| Price Sensitivity | Low correlation with the equity market | Sensitive to economic cycles, potentially more volatile |
| Storage Costs | Generally lower storage costs compared to silver | Higher storage costs, contributing to a higher expense ratio |
| Market Trading Volume | Traded in significant volumes | Not traded in volumes like gold |
| Metal Pricing | Generally more stable due to precious metal status | Price sensitive to economic cycles |
To Wrap It Up…
Silver ETFs offer investors an easy and cost-effective way to invest in silver. They provide exposure to the price movements of silver without requiring investors to take physical possession of the metal. Additionally, they offer benefits such as diversification, liquidity, and low expense ratios.
However, like any investment, there are risks to consider, such as price volatility and counterparty risk. Therefore, carefully consider your investment goals and risk tolerance before investing in silver ETFs.
FAQs
Silver, valued for its enduring purchasing power, has been a staple safe asset in India. Beyond its roles in jewelry and coins, silver plays a crucial part in various industries such as solar panels, smartphones, electric vehicles, and more.
Here is an educational list of Silver ETFs in India:
1. Nippon India Silver ETF
2. ICICI Prudential Silver ETF
3. Aditya Birla Sun Life Silver ETF
Choosing physical silver may involve higher initial costs, but it presents the opportunity to sell assets at a premium later on. On the other hand, the best silver ETF in India provides a transparent and liquid market, enabling investors to trade at the current market price.
Silver, viewed as a capital asset, is categorized akin to debt securities. Holding silver for over 36 months results in long-term capital gains tax at a fixed rate of 20%.
Gold ETFs trade more frequently than silver ETFs, offering increased liquidity for better stock market transactions. With lower fees due to holding tangible assets like gold bars or coins, they avoid involvement with paper contracts.
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