Silver ETFs - Meaning, Key Features and Taxation

What are Silver ETFs?

A Silver ETF is an exchange-traded fund that invests at least 95% of the net assets of the scheme in Silver and Silver related instruments.Exchange Traded Commodity Derivatives (ETCDs) having silver as the underlying shall be considered as a ‘silver related instrument’ for Silver ETF.  Silver ETFs provide exposure to silver by holding physical silver bars of 99.9% or higher purity.

How does a Silver ETF work?

A Silver ETF scheme is a passively managed ETF and tracks the domestic prices of physical Silver. The investment objective of the scheme is to generate returns that are in line with the performance of physical silver in domestic prices, subject to tracking error. 

It tracks the market price of silver and the Net Asset Value (NAV) of the fund is subject to fluctuations based on the spot price of silver. In addition, once the ETF gets listed on the exchanges, any investor can buy/sell units on a continuous basis on recognized stock exchange(s).

Why invest in silver as an asset class?

Silver has played a significant role in investment portfolios throughout history. It is considered a precious metal with inherent value and has demonstrated periods of reliable performance. However, like any investment, silver prices can be volatile, and past performance is not indicative of future results. 

Taxation of Silver ETFs -

• For investment period <= 1 year
  Gains/profits are treated as short-term capital gains & taxed as per your tax slab (plus 4% cess and surcharge, if any)
• For Investment period > 1 year (Before 1st April 2025)
  Gains/profits are treated as long-term capital gains and taxed as per your tax slab (plus 4% cess and surcharge, if any)
• For Investment period > 1 year (Starting from 1st April 2025)
  Gains/profits are treated as long-term capital gains and taxed at 12.5% (plus applicable surcharge and 4% cess)

Who should invest in silver ETFs?

Silver ETFs can be suitable for a variety of investors, including those seeking:

• Portfolio diversification.
• Exposure to precious metals.
• Low Historical Correlation with Equity.

However, it's essential to consider your individual investment goals, risk tolerance, and investment horizon before investing in Silver ETFs.

How to invest in Silver ETF in India?

One can invest in Silver ETFs in India through a brokerage/Demat mode. These ETFs are also listed on Indian stock exchanges, and investors can buy and sell them like any other listed security.

Conclusion

Silver ETFs offer a convenient and accessible way to invest in silver. They provide liquidity, and diversification benefits. However, like any investment, it's crucial to conduct thorough research, understand the risks involved, and align your investment strategy with your financial goals before investing in Silver ETFs.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.

Published on 27 March, 2025