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Silver has traditionally been viewed as both a precious metal and an industrial commodity, leading to its inclusion in various market-linked investment products. In this context, silver ETFs have emerged as a structured way to gain exposure to silver prices through the financial markets.
Silver ETFs are mutual fund schemes that invest in silver or silver-backed instruments. They operate within the mutual fund framework regulated by the Securities and Exchange Board of India (SEBI) and are listed on stock exchanges for trading.
Key characteristics of silver ETFs include:
Underlying asset:
Investments are backed by physical silver, typically held in standardised bars of high purity.
Exchange listing:
Units of silver ETFs are traded on recognised stock exchanges, similar to equity shares.
Price tracking:
These funds track domestic silver prices, adjusted for costs such as storage, insurance, and fund management expenses.
Custody and regulation:
The physical silver is stored with approved custodians, and the funds operate under regulatory disclosure and reporting norms.
Taken together, silver ETFs combine exchange-based liquidity with regulated custody and operational convenience, offering a paper-based route to track silver prices without direct physical handling.
Understanding how silver ETFs operate provides clarity on how silver exposure is structured within a market-linked investment product, especially when compared with other commodity-based instruments such as a gold ETF.
Pooling and asset backing:
Silver ETFs collect funds from multiple participants and use them to purchase physical silver bars that meet defined purity standards, typically around 99.9%.
Net Asset Value (NAV) linkage:
The NAV of a silver ETF is derived from prevailing domestic silver prices, adjusted for costs such as storage, insurance, and fund management expenses.
Exchange-based trading:
Units of silver ETFs are listed on stock exchanges and are traded during market hours, similar to equity shares and other exchange-traded products. The silver ETF share price fluctuates based on the value of the underlying silver holdings and prevailing market demand.
Unit-based investment structure:
Each unit generally represents a fixed quantity of silver, often aligned with the price of approximately one gram, which determines the transaction value per unit.
Together, these elements explain how silver ETFs combine exchange-based liquidity, transparent pricing, and physical asset backing within a regulated framework, similar in structure to commodity ETFs such as a gold ETF.
The following table outlines the structural and operational characteristics of silver ETFs as defined under the mutual fund framework.
| Feature | Description |
|---|---|
Underlying Asset |
Physical silver (bars) of high purity |
Mode of Investment |
Through stock exchanges or demat accounts |
Liquidity |
Traded on NSE/BSE with daily price updates |
Purity Standards |
Typically 99.9% (LBMA-accredited or equivalent) |
Storage & Custody |
Managed by the fund house in secure vaults |
Tracking Error |
Minor deviation from spot silver prices due to expenses |
Silver ETFs exhibit certain structural and operational characteristics when compared with physical forms of silver.
Silver ETF units are listed on stock exchanges and can be traded during market hours through a demat account.
The underlying silver held by these ETFs typically adheres to defined purity standards, such as 99.9%, as disclosed by the fund.
Silver ETFs do not involve making charges or physical storage arrangements. Costs are reflected through expense ratios and brokerage charges.
Silver ETFs track the price of silver, which may exhibit price movements that differ from equities and fixed-income instruments.
Prices and Net Asset Values (NAVs) of silver ETFs are published regularly through stock exchanges and fund disclosures.
Silver ETFs are subject to certain market-linked and structural factors that affect how they function and perform over time.
| Risk Type | Explanation |
|---|---|
Price Volatility |
Silver prices fluctuate based on global demand-supply trends |
Tracking Error |
Returns may slightly deviate from actual silver price |
Limited Historical Data |
In India, silver ETFs are relatively new (post-2022) |
Regulatory Changes |
Taxation or investment limits may evolve |
No Physical Redemption |
Unlike Gold ETFs, most silver ETFs don’t allow physical delivery |
Silver ETFs and physical silver represent two distinct forms of exposure to silver, differing in structure, storage, and transaction characteristics.
| Parameter | Silver ETFs | Physical Silver |
|---|---|---|
Purity |
99.9% (verified by custodian) |
Varies depending on source |
Storage |
Not required |
Needs safe custody, incurs additional cost |
Liquidity |
Exchange-traded |
Depends on buyer/seller availability |
Making Charges |
None |
Applicable in jewellery or coins |
Pricing |
Transparent and standardised |
May vary by region or seller |
Risk of Theft |
None |
Exists with physical possession |
Silver ETFs in India are taxed under the non-equity mutual fund taxation framework. The silver ETF tax India treatment depends on the holding period and the nature of income.
Short-Term Capital Gains (STCG):
Gains from silver ETFs held for less than three years are added to total income and taxed as per the applicable income tax slab. This forms part of the overall tax on silver ETFs.
Long-Term Capital Gains (LTCG):
For holdings exceeding three years, gains are taxed at 20% with indexation benefits, constituting the applicable Silver ETF capital gains tax.
Dividend income:
Dividends, if declared, are taxed under “Income from Other Sources” as per the income tax slab.
In summary, taxation of silver ETFs is determined by the holding period and income classification under prevailing tax rules.
Silver ETFs are commonly referenced in portfolio discussions involving the following contexts:
Asset class diversification:
Used in frameworks that include commodities alongside traditional asset categories such as equities and precious metals.
Commodity price exposure:
Referenced in discussions related to tracking silver prices within the broader commodities segment.
Exchange-traded access:
Structured as listed instruments that provide exposure through regulated and transparent market mechanisms.
Non-physical holding format:
Represent a paper-based alternative to holding physical silver in the form of coins or bars.
Silver ETFs are typically discussed within long-term allocation contexts where commodities form part of a broader portfolio structure.
Silver ETFs are accessed through standard exchange-traded mechanisms using regulated market infrastructure. The process generally involves the following elements:
Silver ETF units are bought and sold on stock exchanges and require an active demat and trading account.
Silver ETFs are offered by various asset management companies and are listed under their respective fund schemes.
Orders for silver ETF units are placed through broker platforms during normal trading hours, similar to equity transactions.
Information such as Net Asset Value (NAV), expense ratio, and tracking error is published by fund houses as part of regulatory disclosures.
Silver ETFs represent a regulated, exchange-traded structure through which silver-linked price movements are reflected in fund units. Introduced in India in recent years, these instruments form part of the broader commodity-linked mutual fund landscape and operate within established market and regulatory frameworks.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Usually, the minimum is equivalent to the price of 1 gram of silver.
Most silver ETFs do not offer physical delivery and provide price exposure through fund units instead.
Silver ETFs invest directly in silver, while mutual funds that invest in silver ETFs are called FoFs (Fund of Funds).
Silver ETFs are subject to market-linked price fluctuations influenced by global silver prices and related factors.
Silver ETF units can be sold on stock exchanges through a demat and trading account during market hours.
Yes, silver ETFs are listed on stock exchanges and are traded similarly to equity shares.
Silver ETFs pool investor funds to hold physical silver, and their unit prices reflect the value of the underlying silver after expenses.
NAV calculation uses the market value of fund holdings, adjusted for expenses and liabilities.
Silver ETFs can be bought or sold on recognised stock exchanges using a demat account.
NRIs may invest in silver ETFs subject to applicable RBI and SEBI regulations and the fund house’s policies.
Silver ETFs reflect short-term price movements of silver, though suitability depends on individual investment objectives and market conditions.
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