What Are The Features Of Silver Etfs?

By Author: Anand Srinivasan
Total Articles: 8
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Like gold, silver is another popular commodity for Indian investors. However, many people find purchasing and selling physical silver difficult. There is also an added difficulty in storage and safety. Investing in Silver Exchange-Traded Funds can free you from all these hassles. ETFs are a collection of Bonds, Equities, and Commodities traded on an exchange. With ETFs, you can collectively invest in a large quantum of securities at affordable rates.

A Silver ETF is a financial instrument whose underlying asset is silver. It invests approximately 95% of its corpus in physical silver or assets like Exchange-Traded Commodity Derivatives. It also tracks the spot price of silver and delivers returns accordingly.

How does it work?


Demand and supply of silver throughout the trading day influence the Silver ETF price. Following the demand and supply principle, the prices will continue to rise if the demand for silver grows. Meanwhile, the costs will decline to zero if the demand exceeds the supply.

Features

Fund managers of silver ETFs purchase ...
... silver and store them in secure vaults. SEBI safeguards the rights by regulating them. The fund managers must obtain auditor reports on physical verification of the silver stored in vaults regularly. Here are the features:

Purity


Investors who invest in the best Silver ETF need not worry about the metal’s purity. Fund managers buy physical silver, which is at least 99.9% pure, and store it in secure vaults. You can invest in these by following the SIP or lumpsum investment method.

Hedge against inflation


Investing in gold and silver can hedge against inflation. You can use these investments during a crisis to compensate for declining purchasing power. Silver and cyclical equities, including energy stocks, may offer better returns for inflation-conscious investors. Investing in funds like the DSP Silver ETF can add precious metal exposure to your portfolio.

No storage costs


Silver-based ETFs need not require storage costs. Fund managers can purchase the asset by utilising the investment corpus. Their storage and security are also a fund house’s responsibility.

Reduced risk


To reduce the overall risk exposure, you can diversify your portfolio by investing in low-risk assets like silver, gold, etc. When you invest in Silver ETF, remember to pay the Long-Term Capital Gains Tax of 20% if you plan to hold it for more than 36 months. However, if the investor’s holding is for less than three years or 36 months, profits are treated as Short-Term Capital Gains and taxed per the respective tax slab.

Conclusion


A Silver ETF is an investment fund that tracks the price of silver and allows investors to invest in silver without owning it physically through the National Stock Exchange and Bombay Stock Exchange in India. Since it is more volatile than gold, consider your risk appetite before investing.