Silver and commodity ETFs

Just as with gold, you can hold silver without storing metal. Paper silver — and paper commodities more generally — let you hold a commodity’s price through a fund. The structure will look familiar; what differs is the commodity underneath, and that difference matters.

How you hold silver on paper

There are two routes, the same two as gold. A silver ETF is an exchange-traded fund that holds physical silver and trades on the stock exchange, so buying one needs a demat account and its price follows the silver price through the day. A silver fund is a mutual fund that invests in a silver ETF, so you buy it like any mutual fund, without a demat account, and can run a SIP into it. There is no sovereign-bond route for silver as there is for gold.

Silver is not gold

They are talked about together, but they behave differently. A large part of silver’s demand is industrial — it is used in electronics, solar panels and manufacturing — so its price responds to the industrial cycle as well as to its role as a store of value. Partly for that reason silver has tended to swing more than gold. Treating one as a stand-in for the other misreads what moves each.

A commodity earns nothing on its own

This is the point that applies to every commodity ETF, silver included. A share earns you a slice of a company’s profits; a bond pays contracted interest. A commodity does neither — with an ETF or fund your return is only the change in its price, minus costs. In India these funds are mostly in precious metals, and whatever the metal, you are holding a price, not a business.

The risk the shine hides

A commodity is often assumed to be a steady store of value. It is not a fixed or protected hold: the price moves, can fall, and can go nowhere for years at a stretch. That is why a commodity is usually discussed as a diversifier inside a multi-asset mix rather than as an engine of growth on its own — a description of how it is used, not advice that you use it.

Tax depends on the wrapper

How paper silver or any commodity fund is taxed depends on the wrapper you hold it through, and the rules here have changed more than once and can change again at a budget. Because the treatment turns on the product and on rules that move, confirm your own position with a qualified tax adviser rather than assuming it from another year or another product.