Precious metals have always held a significant place in investment portfolios, especially in India where gold and silver are more than just commodities—they are a part of tradition and culture. Among these, silver stands out as an affordable and high-demand asset with industrial and investment value. In recent years, silver mutual funds have emerged as an efficient way for investors to gain exposure to silver without the hassle of physical ownership. This beginner-friendly guide will walk you through everything you need to know about investing in silver mutual funds in India.
What Are Silver Mutual Funds?
Silver mutual funds are investment instruments that aggregate funds from multiple investors to focus on silver and silver-related assets. These may include silver ETFs (Exchange-Traded Funds), silver mining company stocks, or direct investments in silver bullion. The core aim is to deliver returns that reflect the market performance of silver as a commodity.
Unlike direct investment in silver, these funds offer professional management, liquidity, and ease of access, making them attractive to both new and seasoned investors.
Why Invest in Silver Mutual Funds?
Hedge Against Inflation: Silver, like gold, often acts as a hedge against inflation. When currencies depreciate, precious metals often hold their value or increase.
Diversification: Silver mutual funds offer portfolio diversification. Precious metals tend to behave differently from stocks and bonds, offering portfolio stability during market volatility.
Industrial Demand: Silver plays a vital role in various industries, including electronics, solar energy, and medical technology. This industrial demand adds a layer of stability and growth potential to its investment profile.
Affordability: Silver’s lower price compared to gold makes it an attractive option for retail investors with limited capital.
Convenience: Investing via mutual funds removes the need to physically store silver and eliminates concerns about purity and authenticity.
Types of Silver Mutual Funds in India
Silver ETFs are funds that directly invest in physical silver with the goal of mirroring silver's price movements. For example, the Nippon India Silver ETF and the ICICI Prudential Silver ETF serve as illustrative cases.
Silver Fund of Funds (FoFs) are mutual funds that channel investments into underlying silver ETFs. They are suitable for investors who do not have a demat account, as FoFs can be bought and sold like any regular mutual fund.
Steps to Invest in Silver Mutual Funds
Step 1: Understand Your Investment Goals
Clarify whether your goal is wealth creation, hedging against inflation, or portfolio diversification. Knowing your goal helps in selecting the right type of silver mutual fund.
Step 2: Choose the Right Type of Fund
If you have a demat account and prefer market-linked investment, opt for Silver ETFs. If you prefer SIP (Systematic Investment Plan) and do not want to deal with the stock exchange, a Silver FoF may be better.
Step 3: Select the Mutual Fund Scheme
Research and compare different schemes based on factors like:
Fund performance
Expense ratio
Fund manager’s track record
AUM (Assets Under Management)
Some popular options include:
Nippon India Silver ETF and Silver FoF
ICICI Prudential Silver ETF and Silver FoF
Step 4: Open an Investment Account
Opening a demat and trading account with a SEBI-approved broker is a fundamental step for ETF investments.
If you're interested in FoFs, consider opening an account with an AMC or exploring platforms like Groww, Zerodha Coin, and Paytm Money for investment.
Step 5: Start Investing
Decide the amount and mode of investment:
Lump Sum: One-time investment
SIP: Periodic investment to average cost over time
Taxation on Silver Mutual Funds
Silver mutual funds are treated as non-equity funds for tax purposes in India:
Short-Term Capital Gains (STCG): If held for less than 3 years, gains are taxed as per your income tax slab.
For long-term capital gains (LTCG) realized after holding an asset for over 3 years, a tax rate of 20% applies, along with the benefit of indexation.
Risks Associated with Silver Mutual Funds
Price Volatility: Silver prices are more volatile compared to gold. Sudden price swings can impact returns.
Market Risks: ETFs and mutual funds are subject to market risks. The Net Asset Value (NAV) is susceptible to fluctuations stemming from market conditions.
Currency Risk: Since silver is traded globally, exchange rate fluctuations can affect fund returns.
Liquidity risk is a potential concern for certain silver ETFs due to their limited trading volumes, which can impact the ease of executing buy and sell orders.
Tips for Investing Wisely
Start with a small amount to understand how silver behaves in your portfolio.
Use SIPs to average out costs over time.
Rebalance your portfolio periodically.
Don’t treat silver mutual funds as a substitute for core equity or debt holdings.
Best Platforms to Invest in Silver Mutual Funds in India
AMC Websites: Direct investment with lower expense ratios.
Online Platforms: Zerodha Coin, Groww, Paytm Money, Kuvera
Banks and Financial Advisors: Offer guided investment options.
Conclusion
Silver mutual funds present a smart and accessible way for Indian investors to diversify their portfolios and hedge against economic uncertainties. While they carry inherent risks associated with commodities, they also offer significant benefits like liquidity, professional management, and affordability. With proper research and a clear investment strategy, even a beginner can make informed decisions and benefit from silver's long-term potential. Prior to making any investment decisions, be sure to seek advice from a financial advisor.