Gold vs. Silver ETFs: Which Precious Metal Belongs in Your Portfolio?

A Gold ETF is a exchange traded funds that buys and holds physical gold on behalf of investors. It trades on the stock exchange, so you can buy or sell it in the same way you trade shares. 

Always remember that you do not receive gold in hand. Instead, you own “units”, the price of which moves with the market price of gold. You can trade these ETF units on stock exchanges i.e., NSE or BSE using your demat and trading account.

When you buy a unit of a Gold ETF, the fund purchases the same amount of physical gold and keeps it with an authorised custodian. The fund does not try to beat the market. It only follows the price of gold.

As a result, the Gold ETF returns may change based on these two primary factors:

1. International gold prices and

2. The rupee-dollar (USD/INR) exchange rate (because gold prices are set globally in USD)

    

Mostly reputed Gold ETF schemes hold gold of 99.5% purity. Thus, buyers do not need to worry about adulteration, mixing, or quality checks. Additionally, 
 

• Gold ETFs are Easy to Buy and Sell: 

  • You can sell your units anytime during market hours. 

  • Physical gold often involves making charges or discounts on resale, which do not apply to ETFs.

• Comparatively Lower Costs

  • You do not pay for storage, insurance, or making charges. 

  • The only cost is the expense ratio, brokerage fees STT/ Exchange fees or other similar charges. 

• No GST on Purchase

  • Buying physical gold attracts 3%-5% GST. 

  • However, buying Gold ETFs does not attract such taxes.

Just like gold ETFs, silver ETFs are also exchange traded funds that buy and hold physical silver on behalf of investors. They are traded on stock exchanges just like company shares. 

Again, when you buy a silver ETF, you do not receive physical silver. Instead, you own units whose value moves with the domestic price of silver.

Note that in a silver ETFs, silver is the underlying asset. The fund collects money from investors and uses that pool of funds to buy physical silver bars of high purity (usually at least 99.99% purity). This silver is stored in secure vaults managed by authorised custodian banks.

The price of each unit of a silver ETF is linked to the current market price of silver. This allows the ETF to mirror silver’s performance.

Since investors do not hold physical silver, there is no risk of loss, damage, or theft. Additionally:

• Silver ETFs Could Be Highly Liquid & Flexible:

  • Investors can buy or sell the ETF units from anywhere through stock exchanges (during market hours). 

  • They can also invest any amount based on their budget. 

• Comparatively Lower Costs:

  • There are no storage, making, or insurance charges that usually apply to physical silver. 

  • The only ongoing cost is the fund’s expense ratio, brokerage fees, STT/ Exchange fees and other similar charges

• Transparency:

  • Investors can see the real-time value of their units anytime.

  • The silver ETF price reflects the domestic market price of silver, subject to tracking errors. 

Before choosing between gold and silver ETFs, be 100% clear about why you want the metal in your portfolio. Note that gold may be suited for investors who want relative stability + protection during uncertain market periods. Why? That’s because gold usually holds value when:

• Currencies weaken or

• When equity markets are under pressure. 

In contrast, silver is influenced not only by investor demand but also by industrial needs such as electronics, solar panels, and manufacturing. This dual nature makes its price more volatile. 

Hence, if your purpose is long-term stability and capital protection, gold may be more appropriate. Whereas, if your purpose is to exploit short-term opportunities or trade based on economic trends, silver may be considered. 

Additionally, to pick the right precious metals ETF, you may also read the market environment and check what the economy is signalling. 

Okay, but how to do it? Realise that the price of gold and silver does not move randomly! Instead, each metal reacts to very specific “economic signals”. As an investor, when you understand these signals, you can better decide which metal deserves more weight at a given time. Let’s check them out:

To let investors gain exposure to domestic prices of gold and silver, Tata Mutual Fund™ offers two types of precious metals ETFs:

• Tata Gold Exchange Traded Fund and
• Tata Silver Exchange Traded Fund

Both schemes are available in the “Direct-Growth” variant. This means you can invest directly with Tata Mutual Fund™ and are not required to pay commission to distributors. Also, these gold and silver ETFs do not pay dividends. All profits are reinvested back into the scheme, and the value of your investment potentially increases through NAV (Net Asset Value) appreciation. 

In addition to precious metals ETFs, Tata Mutual Fund™ also offers Tata Gold ETF Fund of Funds and Tata Silver ETF Fund of Funds. These are open-ended schemes, respectively investing in the Tata Gold Exchange Traded Fund and the Tata Silver Exchange Traded Fund. 

Let’s gain more clarity about all these investment options below:

1. Tata Gold Exchange Traded Fund

2. Tata Silver Exchange Traded Fund

3. Tata Gold ETF Fund of Funds

4. Tata Silver ETF Fund of Funds

Disclaimer: 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.

So now you know gold and silver ETFs are two distinct financial products that are influenced by different economic signals. The choice between the two entirely depends on your investment purpose and your risk appetite. 

Still, to make a better selection, you may consider the following factors:

• Your core objective: Decide whether you want long-term stability or short-term opportunity.
• Your investment horizon: How long do you plan to stay invested?

Current economic signals: Check whether conditions favour the demand for defensive assets or industrial growth.