Silver ETF is a commodity based ETF offered by mutual fund houses wherein 95% of the corpus is invested in silver or silver related derivative products like Exchange Traded Commodity Derivatives (ETCDs) having silver as the underlying product. The investments in silver ETCD cannot exceed 10% of the corpus of the scheme. The physical silver held as a part of silver ETF will be kept with third party custodians and is required to be physically audited by statutory auditors.
When you invest in physical silver you have to incur the cost of locker rent for storage as well as insurance premium for risk of theft. Also, there is a GST (Goods and Service Tax) cost at the time of purchase for which credit is not available to a small investor at the time of sale, thus reducing the extent of return. On the other hand, Silver ETFs are traded on the stock exchanges so you need to have a demat account as well as a trading account for investing in silver ETFs. However, during the NFO, you can apply directly with the fund house but the ETF units will be credited to your demat account.
Silver ETFs offer you liquidity as it can be sold on stock exchange any time you wish. Such an arrangement allows an investor to make the most of any price volatility which is impossible when investing in physical silver.
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