Are silver ETFs a good investment option?

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Amid rising geo-political tensions across the world, the silver market is hot. Currently, silver is trading around Rs 94,000-95,000 per kg, and there is a possibility of the metal going up to Rs 1 lakh per kg as well. Rising silver prices have made new investments difficult. In such a situation, a cheaper and better way to invest in silver is through a Silver ETF. Let’s understand it in 5 points.

What is a silver ETF? How does a silver ETF work? How to invest in it, and what returns have silver ETFs delivered? Lets understand all this. A Silver ETF is a type of exchange-traded fund, which invests money collected from people into silver and silver-related instruments. The fund managers of silver ETFs buy silver, and then keep it in secure vaults.

When silver prices rise, investors benefit from the same. Apart from jewelry, silver is used in many sectors like electronics, solar, medicine, telecom etc. This is why it also has considerable industrial demand. Silver ETFs track the spot price of silver in the open market. You are allotted units upon investing in them. One unit equals one gram of silver. The NAV or net asset value of silver ETFs changes with the fluctuations in silver prices in the market

To protect the interests of investors, SEBI regulates these ETFs. When a new fund offer (NFO) of a silver ETF comes, you can subscribe to it. After the NFO closes, the ETF gets listed on the stock exchange, and then it trades akin to shares of listed company.  After the NFO period is over, you can buy the existing silver ETF at prevailing prices on the stock exchange through your demat and trading account.

For instance, if we take ICICI Prudential Silver ETF, one unit was priced at Rs 94.56 on May 20, 2024. You can invest just Rs 94.56 to buy one gram of silver or buy 10 units for Rs 945.

Currently, there are around 17 silver ETF schemes in the market. These include HDFC Silver ETF, UTI Silver ETF-FoF, Axis Silver ETF, Aditya Birla Sunlife Silver ETF, ICICI Prudential Silver ETF, Kotak Silver ETF, DSP Silver ETF and Nippon Silver ETF among others.

Returns offered 

In any investment, the returns generated matter the most, as  investment decisions are typically made based on these returns.

Let’s look at the year-to-date returns of silver ETFs till May 2024. ICICI Prudential Silver ETF has given 25.48% returns so far. HDFC Silver ETF FoF (Regular) has given 25.26%, while UTI Silver ETF Fund of Fund (Regular) has given 27.21% returns

Typically, we buy silver physically in the form of jewelry, bars, ingots or coins. You can buy silver jewelry for simply wearing it, but it is not considered ideal for investment purposes, because of purity concerns. 

Most silver jewellery or coins are made by using other metals as well. So, when you go to sell silver, the price will be reduced due to the presence of other metals. Whereas the silver that silver ETFs buy is 99.99% pure, which is why investors need not worry about its purity

If you buy a lot of physical silver, the storage could be a significant hassle. If you keep it in a bank locker, you’ll have to pay annual charges, and if kept at home, there is a risk of theft. This is why silver ETFs are a cheaper, effective and a far better option for investment.