How to invest in Silver ETFs in India: Step-by-Step Guide?

Silver ETFs are exchange-traded funds that invest in at least 95% of their net assets into silver and silver-related instruments. As per SEBI guidelines in India, silver ETFs can invest in:

• Physical silver of 99.9% purity 

• Exchange-Traded Commodity Derivatives (ETCDs) that have silver as the underlying commodity (subject to limits and rules set by SEBI)

The objective of a silver ETF is to generate returns that are in line with the performance of physical silver domestic prices, subject to tracking errors. This means that silver ETF prices change based on how the price of silver fluctuates in the domestic market and the same is reflected in the daily NAV of the ETF. 
 

Before we get to how you can start investing in silver ETFs, let’s understand how a silver ETF works:

• Silver ETFs pool funds from different investors and fund managers use it to buy physical silver

• The physical silver is stored in secured vaults so you don’t have to worry about asset safety and storage

• Silver ETF prices track the price of silver in the domestic market. This means that the NAV of the silver ETF moves in line with the market price of silver

• You can buy and sell silver ETF units on the stock exchange using your Demat and trading account

If you’re thinking of investing in silver ETFs, here’s a quick on how to buy silver ETFs in India:
 

Step 1: Open a Demat and Trading Account

Since ETFs trade on stock exchanges, you will need an active Demat account to store the ETF units and a trading account to buy and sell the silver ETF units. This means you will need to open a Demat and trading account with a SEBI-registered broker to invest in silver ETFs (if you don’t already have them).

The good news is that most brokerage firms offer an easy online account opening option with a quick e-KYC for verification. Once your KYC is verified, you will be able to start investing in silver ETFs.

Step 2: Research and Choose a Suitable Silver ETF

The next step in buying silver ETFs is researching which one you wish to pick. There are a number of silver ETFs in the market and choosing among them means comparing more than just silver ETF returns. 

You can compare different silver ETFs based on factors like:

• Expense ratio: This is the annual fee charged by the fund, which can impact your overall silver ETF returns over time.

• Liquidity: Higher liquidity means you can buy or sell the silver ETF easily without large price differences.

• Tracking accuracy: This shows how closely the silver ETF follows actual silver prices. That’s why, it may be a key indicator of the silver ETF performance.

Step 3: Place a Buy Order

Once you’ve selected silver ETFs for investment, you can log in to your trading app to place an order. Here’s how you can go about it:

• Search for the silver ETF by name or symbol

• Choose the number of units you wish to purchase or the amount you wish to invest

• Place an order

You can also decide whether you want to buy the silver ETF at the prevailing market price or set a limit price when placing the order. 

Step 4: Monitor the Silver ETF’s Performance 

Once the silver ETFs are credited to your Demat account, you can monitor their performance by logging into your trading account. In order words, you can check how silver ETF returns fluctuate based on the changing price of silver in the domestic market. 

Step 5: Sell When Needed

When you choose to exit, place a sell order for your silver ETF investment during market hours. Steps for the same are listed below:

• Open your trading app

• Choose the silver ETF you wish to sell from your portfolio

• Enter the number of units you want to sell, the price, and order type

Once sold, the proceeds will be credited to your trading account.

Some key advantages of investing in silver ETFs include:

• No Storage Risks: Unlike physical silver, silver ETFs are held by you in an electronic format. This means you don’t have to think about storage costs or theft risks. 

• Liquidity: Since silver ETFs trade on recognised stock exchanges in India where you can buy or sell them with ease during market hours, just like stocks.

• Portfolio diversification: Adding silver ETFs or silver ETF fund of funds to your portfolio may help diversify it since silver belongs to a different asset class and often behaves differently from equities and debt instruments.
   

Every market-linked investment carries risk and silver ETFs are no different. Here’s a list of key considerations you should understand before buying silver ETFs:

• Price volatility: Silver ETF prices may swing sharply based on industrial demand, global supply, and other factors. In other words, silver ETF returns may be volatile. 

• Tracking errors: Tracking errors which can lead to a difference between the silver ETF NAV and prevailing spot prices. This means your investment may not move exactly in line with domestic silver prices.

• Taxation: You will have to pay 12.5% LTCG G tax on any capital gains made from the sale of silver ETFs after a holding period of 1 year. 

Silver ETFs may be suitable for different types of investors. You may consider investing in Silver ETFs, if you’re looking for: 

• Portfolio diversification

• Exposure to precious metals

That said, you should always consider things like your investment goals, risk tolerance, and investment horizon thoroughly before investing in silver ETFs. 

A silver ETF fund of fund offers an alternative if you don’t have a Demat account. In this case, instead of buying a silver ETF yourself, you invest in a mutual fund scheme that, in turn, invests in an underlying silver ETF. This route works well if you prefer getting silver exposure through MFs. 

Here’s what you need to know about investing in silver ETF funds through the mutual fund route:

• You invest in a mutual fund scheme that holds units of a silver ETF

• The fund manager manages ETF purchases and redemptions on your behalf

• Your investment value moves in line with the underlying silver ETF

• You can invest through lump sum or systematic investment options

• Units are held in mutual fund form, not in a demat account

But you should note that investing through silver ETF fund of funds may involve additional costs compared to direct silver ETF investments.

Through silver ETF investments, you can invest in the precious metal without worrying about issues like storage or purity. A silver ETF also gives you the flexibility to buy and sell on the exchange while adding diversification to your portfolio. You can invest either directly through your Demat account or choose a more indirect route through silver ETF fund of funds. 

But before you invest in silver ETFs in any way, it is important that you understand how silver ETF prices moves, the costs involved, and whether silver fits your financial goals and comfort with market risk. 

• An Investor Education and Awareness Initiative by Tata Mutual Fund. 

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• This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.