Silver ETF And Its Role In Your Portfolio


There are two ways to take an exposure to silver in India through the mutual fund route.

One is to invest in an ETF where the investment has to be done through the stock exchange using the demat account. The other is to buy a fund of funds that buys the silver ETF.

Buying the silver ETF directly is the better option as this would be more cost-efficient, which would be visible in the returns.

Already six fund houses—Aditya Birla Sun Life MF, DSP MF, HDFC MF, ICICI Prudential MF, Nippon India MF and Axis MF—have launched their silver ETF in the market that investors can choose from.

All the silver ETFs track the price of silver, so the tracking error would be the main factor impacting the returns from different funds.

The investor can look at the fund house that they are comfortable with and then make the investment since the returns are in a narrow range.

It does not matter whether the investor buys the units through a new fund offering or from an existing fund, as what is important is the prevailing silver price when the purchase is made.

The taxation of silver ETFs is similar to that of debt funds. This means that the capital gains would be long-term in nature only when the units are held for a period of three years or more.

In case of a short-term capital gain, when the units are held for less than three years, the gains would be added to the income of the individual and taxed at the applicable tax slab the individual falls under.

In case of long-term capital gain, the rate of taxation is 20% with the benefit of indexation.

Investors looking for an exposure to silver to diversify their portfolio should consider this as an option.

This would be a different investment as compared to gold within both the precious metals as well as the commodities space.

The overall exposure to precious metals should not be more than 10% of the portfolio.

In addition, the current pullback in the price of silver as well as the expected future prospects, considering the increasing use of the metal in the clean energy sector, makes it an attractive option.

(Arnav Pandya is founder of Moneyeduschool.)


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