Silver ETF
A Silver ETF is a passively managed exchange-traded fund that invests in physical silver of 99.9% purity, with SEBI permitting the launch of Silver ETFs in India from November 2021, enabling investors to gain silver price exposure through a regulated, demat-held instrument traded on Indian stock exchanges.
SEBI issued a circular on 19 November 2021 permitting mutual funds to launch Silver ETFs, completing the commodity ETF ecosystem alongside the existing Gold ETF and international commodity fund structures. The first Silver ETF NFOs in India were launched in early 2022, with multiple AMCs including Nippon India, ICICI Prudential, Mirae Asset, and Aditya Birla Sun Life receiving SEBI approval for their respective schemes. Silver ETFs represented a new and growing category, with combined AUM growing from near-zero to several thousand crore rupees within two years of launch.
Each Silver ETF unit is backed by physical silver stored with approved custodians. The purity requirement is 99.9% (London Good Delivery standard), and the underlying silver is held in allocated form with scheduled bank custodians approved by SEBI. The NAV is linked to the London Bullion Market Association (LBMA) silver spot price, converted to INR using the RBI reference rate, making returns a function of both silver price movements and the rupee-dollar exchange rate — similar to the Gold ETF pricing mechanism.
Silver has a dual demand driver unlike gold: it serves as both a monetary asset (store of value, investment demand) and an industrial input. Silver is a critical component in solar panels, electric vehicle batteries, electronics, and medical devices, meaning industrial demand cycles can drive silver prices independently of investor sentiment shifts. This dual demand character makes silver more volatile than gold — silver prices can swing more violently during industrial boom-bust cycles — and introduces a different risk profile relative to gold ETFs.
The Silver-to-Gold ratio — the number of ounces of silver required to purchase one ounce of gold — has historically oscillated between 50 and 100. During periods when the ratio approaches the higher end (silver is cheap relative to gold), some investors allocate more to silver expecting mean reversion. Silver ETFs provide a convenient, low-cost vehicle for expressing such strategic positioning within a regulated mutual fund framework.
Taxation of Silver ETFs follows the same rules as other non-equity ETFs post the 2023 Budget amendments. Gains on Silver ETFs are now treated as short-term capital gains (taxed at slab rates) if held for less than 24 months, and as long-term capital gains (12.5% without indexation) if held for 24 months or more, under the revised Budget 2024 framework. Investors previously accustomed to indexation benefits on debt and commodity funds should factor this change into their cost-of-ownership calculations.