Silver ETFs in India

ETFs, or Exchange-traded funds are investment funds that invest the pool money in different assets like stocks, commodities, bonds, etc. Silver ETFs invest the funds in physical silver or silver-related assets. One of the advantages of investing in silver ETFs is the net asset value (NAV) is directly dependent on the silver price. Keep reading to learn about the silver ETF in India, features of silver ETF, taxation on silver ETF, and more in detail.

Features of the Silver ETF in India

To understand the silver ETF in India, let us understand a few features of silver ETFs.

1. No storage cost: With silver ETFs, you don’t have to worry about paying for storage costs. Using the investment pool, the fund manager purchases the silver. The fund house is responsible for the storage and security of the silver ETFs.
2. Protection against inflation: These investment options are less affected during a crisis.
3. Purity: You don’t have to worry about the purity of silver if you are investing in Silver ETFs. It is the responsibility of the fund manager to buy pure silver and store it in secure vaults.
4. Lower Portfolio Risk: To reduce the risk of exposure of the investment, you can diversify the portfolio by investing in low-risk assets like gold, silver, etc.

How to Buy the Silver ETF in India?

You can easily buy the Silver ETF in India by following the below steps:

• Step 1: Open a demat account and trading account with a registered stockbroker.
• Step 2: Create your account using your login ID and password and log in to your account.
• Step 3: Choose the Gold ETF to either buy entirely or opt for systematic SIPs*.
• Step 4: Confirm the order and monitor your investment using your trading account.
• Step 5: Once confirmed, you will receive a confirmation message on your phone or email address.

*Please note that AMC doesn’t provide SIP on an ETF. You must check with your stock broker before investing.

How Does a Silver ETF Work?

SEBI regulates the ETFs to secure the rights of investors. It is the responsibility of the fund manager to purchase silver for silver ETFs and store them in secure vaults. Silver ETFs track the spot price of silver in the open market. Any changes in the price of silver will automatically change the NAV of the EFTs. Also, you don’t have to worry about the purity, as it is taken care of by the fund manager. He/she must obtain an auditor report on physical verification of the silver stored in vaults at regular intervals.

Things to Consider Before Investing in Silver ETFs

Below are a few of the things to consider before investing in silver ETFs: 

• Risk Appetite: Depending on your financial risk-taking capacity, you must invest in any commodity, especially silver, as it is more volatile than gold.
• Expense Ratio: Before making an investment decision, you must compare the expense ratios of various ETFs.
• Tracking Error: The tracking error of various silver ETFs is a must before making an investment decision. You must choose a silver ETD that has minimal tracking error.

SEBI Rules for Silver ETF

Below are a few of the important guidelines and regulations of SEBI related to silver ETFs:

• Purity: Fund houses must buy physical silver of 99.99% purity according to the London Bullion Market Association (LBMA) standard. This helps in maintaining purity and reducing the chance of any fraud.
• Tracking Error: The difference between the returns of a scheme and that of an underlying benchmark is termed a tracking error. Fund houses are allowed to keep the tracking error within a range of 2%. It is the responsibility of fund houses to mention tracking error details on their portal if it exceeds 2%.
• Investment Ceiling: SEBI ensures the fund houses must invest at least 95% of the total corpus in silver and silver-related instruments. Exchange-traded commodity derivatives are also considered silver-related instruments. To meet the requirement, managers can invest in ETDC as well.
• Expense Ratio: The expense ratio is levied by the fund houses on investors to manage the fund’s operating expenses. According to the SEBI mandate, the fund houses cannot charge an expense ratio of more than 1% of the Silver ETF scheme’s assets under management.

Disclaimer: The information provided above is for educational and informational purposes only. It should not be considered financial, investment, or professional advice. Investors are advised to review company financial statements and consult a qualified financial advisor before making any investment decisions.

Conclusion
If you want to avoid complications related to the physical storage of silver, investing in silver ETFs is considered convenient. To take advantage of investing in the silver ETF in India, you must understand the cost of silver, current silver MCX, how to invest in silver, and the workings of silver ETFs. While you invest, it is your responsibility to do your research or take advice from an expert.