Beyond the Metal: How a Silver ETF FoF Complements Your Portfolio?

A Silver ETF FoF works through a two-layer structure that connects your investment to the actual price of silver. Let’s see how it works step by step:

1. First Layer – “The FoF”

   You invest your money in the Silver ETF Fund of Funds. This is a regular mutual fund, and you can invest through an SIP or a lump sum. The FoF uses the money collected from investors to buy units of a Silver Exchange Traded fund.
    

2. Second Layer – “The Silver ETF”

   The Silver ETF is where the actual exposure to silver happens. It invests in physical silver bars that meet a defined purity standard (usually 99.9%)
    

3. Value Tracking

   The price of silver in the market influences the value of the Silver ETF. Since the FoF invests in this ETF, its value fluctuates depending on silver’s domestic market price. This way, your FoF investment tries to be closer to silver’s performance subject to expenses of Silver ETF & Silver ETF FOF.

    

If you are just starting, understand that a “Silver ETF FoF” buys a “Silver ETF”, and that ETF holds physical silver. You can think of it as a simple way to add silver to your portfolio without buying bars or opening a demat account. 

Let’s see how it may complement your portfolio in 2025:
 

1. Adds a Different Source of Returns

Silver is an industrial metal, and its price could move for reasons that are often different from stocks and bonds. Let’s check them out:

Now, because of these reasons, silver may produce potential gains when some stocks fall, so it may improve your overall portfolio returns. 
 

2. Lowers Portfolio Volatility (via Diversification)

When you invest only in one type of asset (say stocks or bonds), your portfolio may fluctuate sharply depending on the stock market. Now, if you add a small portion of commodity like silver, your money is spread across different types of investments. 

As per industry understanding, silver may not move in the same direction as stocks or bonds. So, if the stock market falls but silver prices stay the same or rise, the loss in one part can be partly balanced by the gain or stability in another part. However, this opposite change in price of silver may or may not happen depending upon various market factors.
 

3. Acts as a “Partial” Inflation Hedge

Precious metals are often seen as stores of value when consumer prices rise. 

During such times, precious metals like gold and silver may hold their value. 

So, if inflation increases, the price of silver may also rise (potentially). And when that happens, it may protect your money’s buying power. However, please note that silver is not considered a perfect hedge during inflationary times. 
 

4. Provides Easy Access And Liquidity

You can invest in a Silver ETF Fund of Funds just like any other mutual fund. You may start:

• With a lump sum (one-time investment) OR

• Through SIP (small regular monthly investments)

There is no need to buy or store real silver as the fund manages that part for you.

When you want to cash out, you can redeem your units with the Mutual Fund.

Before investing, you may decide why you want silver in your portfolio:

• Is it for diversification?

• Are you looking for inflation protection?

• Do you only want to bet on silver prices?
   

Note that your reason for investing decides both your “allocation percentage” and your “time horizon”. Let’s see how:

• If you’re adding silver for diversification, keep it as a small part of your portfolio to aim to reduce risk.

• If your goal is inflation protection, try to stay invested for the long term.

• If you are investing mainly to benefit from short-term silver price movements, be prepared for sharp market fluctuations.
   

In all cases, having a clear purpose may allow you to choose the right position size + avoid emotional decisions when prices fluctuate. Next, before buying silver ETF FoFs, you can check for the following:
 

1. Look for Total Cost (Expense Ratios)

A Silver ETF FoF has two layers of costs: 

• The FoF’s expense ratio +

• The underlying ETF’s expense ratio

Add both to know the total expense you’ll pay each year. Always remember that lower costs may potentially improve your long-term returns.
 

2. Track Accuracy and Liquidity

Check how closely the ETF tracks silver prices (called tracking error). A smaller error means better performance alignment with silver. Additionally, check if the ETF has enough trading volume (liquidity) so the FoF can buy and sell units easily.
 

3. Evaluate Fund Quality and Stability

Look at the fund house’s reputation and AUM (Assets Under Management). Check out how long the scheme has existed. 

Investors are requested to note that they will be bearing the recurring expenses of the fund of funds scheme, in addition to the expenses of the underlying scheme in which the fund of funds scheme makes investments.
 

If you want to invest in silver, Tata Mutual Fund™ offers two options:

• Tata Silver ETF and
• Tata Silver ETF FoF

Tata Silver ETF Fund of Fund allows you to invest through a lump sum or a Systematic Investment Plan (SIP).  It is available in Growth and IDCW (Income Distribution cum Capital Withdrawal) options, and you can choose either regular or direct plans based on your preference. Let’s understand them in detail:

(An open-ended exchange traded fund replicating/tracking the domestic price of Silver)

The investment objective of the Tata Silver Exchange Traded Fund is to generate returns that are in line with the performance of physical silver in domestic prices, subject to tracking error. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved.

The fund may keep a small portion in debt or money market instruments to maintain cash availability and to potentially reduce risk. For more clarity, let’s see how the scheme will invest:

(An open-ended fund of funds scheme investing in the Tata Silver Exchange Traded Fund)

The Tata Silver ETF Fund of Fund may primarily invest in Tata Silver Exchange Traded Fund .

The investment objective of the Scheme is to seek to provide returns that are in line with returns provided by Tata Silver Exchange Traded Fund. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved.

Next, the fund may also keep a small portion in debt or money market instruments for liquidity. Check out the table below to learn how the scheme will invest:

Disclaimer: Investors are requested to note that they will be bearing the recurring expenses of the Tata Silver ETF Fund of Fund , in addition to the expenses of the Tata Silver Exchange Traded Fund in which the fund of funds scheme makes investments.

So now you know that Silver ETF FoFs are the first layer of investment, which in turn buy Silver ETFs. Their returns are closer to the performance of the Silver ETF, and there is no need to hold physical silver. 

In 2025, if you currently have an equity or debt-dominant portfolio, you may consider to include silver ETF or Silver ETF FoF units to your portfolio, as they can potentially complement your portfolio in the following ways:

• Adds diversification across asset types

• Aims to reduce overall portfolio volatility

• Acts as a partial hedge against inflation

• Provides exposure to silver markets

If you are searching for silver ETFs to buy, you may consider the Tata Silver ETF. Alternatively, you may also consider the Tata Silver ETF FoF for indirect exposure through a mutual fund structure.

The views mentioned above are for information & educational purposes only and do not construe to be any investment, legal, or taxation advice. Investors must do their own research before investing. The views expressed in this article are personal in nature and in is no way trying to predict the markets or to time them. Any action taken by you on the basis of the information contained herein is your responsibility alone, and Tata Asset Management Pvt. Ltd. will not be liable in any manner for the consequences of such action taken by you. Please consult your Mutual Fund Distributor before investing. The views expressed in this article may not reflect in the scheme portfolios of Tata Mutual Fund. There are no guaranteed or assured returns under any of the schemes of Tata Mutual Fund.