All You Wanted to Know About Silver ETF

What are Silver ETFs?

Silver ETFs are investment options that invest at least 95% of their net assets in physical pure silver and silver related instruments like futures contracts, exchange traded derivatives. The primary underlying asset in all these instruments should be silver as per the mandate by SEBI.

How does Silver ETF work?

As with other exchange traded funds, the Silver ETF is listed on the stock exchange and traded like shares of companies. The price of each unit of the Silver ETF tracks the silver prices in the open market. Therefore, the NAV of silver ETF changes with changes in the price of silver.

You can get an exposure to the silver market investments without having to own physical silver or get into the hassles of storing it.

You may also like to read what are the types, benefits and limitations of ETFs

SEBI operating norms for Silver ETF

1. Silver ETF should invest at least 95% of its net assets in silver bullions and silver backed instruments.


2. Exchange Traded Commodity Derivatives (ETCD) with silver as the underlying commodity can be treated as a silver related instrument. However, investments of ETCD in silver ETF should not exceed 10% of the net asset value of the fund. This restriction does not apply if the intention of the ETF is to take delivery of the physical cycle instead of rolling it over to the next contract cycle.


3. The physical silver bought by the ETF should be in the form of 30 kg bars of silver of 99.9% purity conforming to London Bullion Market Association (LBMA) Good Delivery Standards (source: SEBI circular on Norms for Silver Exchange Traded Funds dated November 24, 2021).


4. The total expense ratio of silver ETF cannot be more than 1% of its net asset value.


5. The tracking error, which is the difference between the scheme’s return and the returns of its underlying benchmark should not exceed 2%. In the event that the tracking error is more than 2% then it should be mentioned on the portal of the fund house.

Why invest in a Silver ETF?

• India is one of the largest silver consuming economies in the world (source: americanbullion.com). India is also one of the largest exporters of silver jewelry in the world. The domestic and international demand for silver is expected to rise in the future.


• In certain parts of the world, silver ore is even more scarce than gold. With rising demand and supply constraints, silver price will continue to rise in the long term even though silver may be more volatile than gold in the short term.


• Over very long investment tenures, silver serves as a hedge against inflation just like gold, though silver tends to be more volatile in the short term.


• Silver has low correlation of returns with equities. Adding silver to your asset allocation will bring diversification to your portfolio.

Taxation of Silver ETF

Silver, a capital asset, is treated as a debt security. Capital gains in silver ETFs, irrespective of holding period, will be added to your income and taxed according to your income tax slab.

How to invest in Silver ETF?

To invest in ETFs, you need to go through the following steps.

1. You would need a demat and a trading account. To open a Demat Account you would need to submit your KYC documents to a DP (Depository participant) or a stockbroker.


2. Your stockbroker or DP will also open a Trading Account for you where you can trade in ETFs or any other stocks online.


3. If you do not want to invest online, then you would need to call your stockbroker to place your buy or sell order.


4. Choose an ETF with a low expense ratio and a high trading volume. Consult your financial advisor or a mutual fund distributor for advice on choosing the Silver ETF best suited for you.