Not everyone, as they say, is born with a silver spoon; for them, investment in silver is probably the closest thing. Metals, like silver, have long been considered significant not just for their monetary value but also for their aesthetics and cultural importance all over the world. While silver is a reliable investment channel, investing in physical metal can be associated with risks of impurity, high storage costs, and upkeep. Investing in silver without facing said issues can be possible with silver mutual funds and silver ETFs.
The question of the hour is – are silver funds the next move for the portfolio? To get to the answer, we must evaluate the different features of a silver fund and understand the latest trends. Join us as we explore all these factors and more!
Silver: Is it the Unsung Hero?
While gold has always hogged the limelight in Indian homes, silver has existed in a background role. It is eagerly traded as a present on special occasions, and its coins and jewellery are emblems of wealth and tradition. But the significance of silver extends beyond emotions. It is a critical ingredient in many industries, like solar panels, electric cars, 5G networks, and medical devices.
This industrial application imparts to silver a clear duality; it functions as both a precious and an industrial metal. Under stable economic conditions, silver functions like an industrial base metal influenced by demand from industrial users. Conversely, in times of economic distress, it tends to replicate gold, providing cover and acting as a hedge.
Affordable, Flexible, and Stress-Free Investing
Earlier, the compulsion to invest in bulk, along with steep premiums and charges, discouraged small investors. But now, silver funds enable you to invest in silver without these issues. With the introduction of silver mutual funds, even loose change can be systematically invested in silver through SIPs (Systematic Investment Plans).
This flexibility and affordability have made silver accessible to new investors as well as experienced ones. With no fears of theft, purity issues, or the bother of bank locker rentals, the process is absolutely hassle-free.
Diversification and Portfolio Stability
At times of uncertainty, a diversified portfolio can act as a shock absorber for unexpected market shocks. The best silver mutual funds prove to be good diversifiers due to the low correlation between silver and equities and even gold. While equity investment is beneficial during a bull run, precious metals such as silver provide protection against the downside.
Investing Made Simple with Silver Mutual Funds
Historically, buying silver involved buying it in physical form, in the form of coins, bars, or jewellery. It is a process with many complexities. Physical silver contains impurities, loses value with age, needs polishing and upkeep, and carries significant storage expenses. Investors view these as diluting returns.
Silver mutual funds turn that equation around. They invest in silver or silver instruments without the investor having to physically hold the metal. Investors can get access to silver at low cost and high liquidity through ETFs and Fund of Funds (FoFs). Most crucially, there are no purity or safe storage concerns.
At an average Total Expense Ratio (TER) of about 0.45%, silver ETFs have made the investment cost-effective. Silver ETFs were introduced in India in February 2022 after the SEBI approval in late 2021. There are eight silver ETFs with Assets Under Management (AUM) of ₹1,750 crore as of April 30, 2023, and five FoFs providing easier investment access for investors with different risk profiles.
About the Silver ETFs
A silver funds ETF replicates the price of pure silver by holding physical silver or silver-related products. These ETFs are in conformity with London Bullion Market Association (LBMA) standards, with a fineness of 999 parts per thousand. Investments in Exchange Traded Commodity Derivatives (ETCDs) with an underlying asset of silver are allowed under SEBI regulations with a 10% limit of the Net Asset Value.
Since they are exchange-listed, these ETFs offer great liquidity, and an investor can purchase or sell units at market prices. There is no minimum investment required, and an ETF can be purchased with any Demat account, the same as a stock.
Latest Global Trends
There are signs that we are entering into a commodity supercycle, which is a long-lasting phase of rising commodity prices. During the previous such cycle (2001 – 2011), silver climbed from $4 to $40, an increase by a factor of ten. The recent gold price surge has highlighted silver again, particularly with the gold-silver ratio now standing above 100 as of April 22, 2025. Historically, high ratios have been followed by phases in which silver systematically outperforms gold.
In the meantime, central banks are piling up precious metals in a rush, and geopolitical tensions are increasing worldwide. All of these make silver a wise addition to the long-term portfolio, not only for safety but for explosive potential.
The statistics back this trend: silver returned 13.1% in the five-year span up to April 2023, bettering Nifty 50 (12.3%) and gold (13%). Even for a three-year span, silver trounced gold’s 8% return with a 20.8% gain. Though volatilities are greater, the performance during market turbulence more than makes up for it in the longer term.
Redemptions and Taxation of Silver ETFs
Redemption is easy; just sell your ETF units on the stock exchange through your Demat account at market prices. For creation unit holders, redemption through the AMC at NAV is an option.
Tax regulations are the same as those for debt funds. For investments of a term less than three years, gains are taxed according to your income tax bracket. For periods of more than three years, long-term capital gains are taxed at 20% after availing of indexation benefits. The holding period for long-term capital gains is three years.
Wrapping Up!
In a time of worldwide uncertainty, increasing inflation, turbulent markets, and increased geopolitical tensions, precious metals, and especially silver, are getting renewed interest. And for good reason. With the advent of silver mutual funds and ETFs, silver has evolved from a physically challenging-to-get commodity into a convenient, diversified, and affordable investment vehicle. While silver can be more volatile than gold, for long-term investors who can ride out volatility and seek diversification, silver mutual funds might be the best-kept secret of the new portfolio. Allocating 5 to 15% of your portfolio to precious metals, including silver, could be a prudent strategy in today’s climate. Evaluate your portfolio and investment goals; seek professional guidance if needed, and then decide what world is best for you.
