With precious metal prices hovering near multi-year highs and global economic uncertainty persisting, it’s clear that investors are increasingly turning to SEBI-regulated gold and silver Exchange Traded Funds (ETFs). These investment vehicles offer unmatched transparency, ease of access, and robust regulatory oversight.
In February 2026, silver ETFs in India are generating substantial attention, fueled by market volatility, new product launches, and SEBI reforms. With returns exceeding 150% over the last year, retail investors are actively engaging despite market corrections, according to brokerage reports. For those seeking a clear understanding of this investment instrument, it’s essential to dive deep into the intricacies of Silver ETFs and all their facets.
What is a Silver ETF?
A Silver ETF is an exchange-traded fund that is listed on stock exchanges like NSE and BSE. It tracks the price of physical silver, usually 99.9% pure bars that meet LBMA standards. This means you gain exposure to silver without actually owning the metal.
In India, the first silver ETFs launched in 2022 after SEBI allowed mutual funds to create them. These ETFs store physical silver in secure vaults, and their Net Asset Value (NAV) changes based on the silver price in the local market, usually linked to MCX prices. Investors can buy and sell ETF units on stock exchanges just like regular shares, eliminating concerns about storing silver, ensuring its purity, or paying for insurance.
By 2025, Indian silver ETFs managed thousands of crores in assets, showing a growing interest from investors due to global demand and economic uncertainty. For those looking for a regulated way to invest in silver, silver ETFs offer liquidity, transparency, and easy access through demat accounts.
How Does It Work?
Fund houses invest at least 95% of their assets in physical silver held in secure vaults by custodians like Brink’s. They may invest up to 10% in silver derivatives. The NAV reflects the current silver prices (from MCX), minus low expense ratios of around 0.3% to 1%. Investors can buy or sell units through their demat accounts during market hours, which provides high liquidity.
SEBI Price Band Proposal for Silver ETFs
On February 14, SEBI proposed to set price bands of +/-20% on gold and silver ETFs, considering fluctuations in international markets. The initial price band for gold and silver ETFs would be +/-6%, which can increase to +/-20% during the trading day after a cooling-off period. This proposal aims to promote market stability and boost investor confidence as metal prices change.
Types of Silver ETFs
Physically-Backed Silver ETFs
Investors who want direct exposure to silver prefer physically-backed Silver ETFs because they don’t have to handle the metal physically. These ETFs allow for easy investment in silver without managing physical ownership.
Futures-Based Silver ETFs
Instead of owning physical silver, these ETFs invest in silver futures contracts—agreements to buy silver at a later date. Since these contracts expire, fund managers need to keep buying new contracts to maintain their silver investments. This can create risks related to market changes and the need to roll over contracts.
Is Silver ETF a High-Risk Instrument?
Silver ETFs are considered high risk mainly because silver prices can be very volatile. Unlike gold, about 50–55% of silver demand comes from industries like solar power, electronics, electric vehicles, and semiconductors. This reliance on industrial use makes silver prices sensitive to changes in the global economy.
Historically, silver has been more volatile than gold, often experiencing significant price swings in short periods. Several factors influence silver prices, including the strength of the US dollar, expectations for US interest rates, and speculative trading on markets like COMEX. This means that while silver ETFs can rise sharply during favorable commodity conditions, they can also fall quickly. Therefore, it is important for investors to be disciplined when allocating funds to silver ETFs.
Which ETF is Better: Gold or Silver?
The choice between gold and silver ETFs depends on an investor’s objectives and risk appetite. Gold is primarily a monetary metal and safe-haven asset, with central banks holding it as reserves. Its demand is relatively stable, making gold ETFs comparatively less volatile. Silver, on the other hand, has a dual role—precious and industrial—making it more cyclical.
In phases of economic expansion and green energy growth, silver can outperform gold due to rising industrial consumption. However, during risk-off environments, gold tends to hold value better. Historically, silver has shown higher beta relative to gold, amplifying both gains and losses. Conservative investors typically prefer gold ETFs for portfolio stability, while tactical or aggressive investors may allocate selectively to silver ETFs to capture commodity upcycles.
How Are Silver ETFs Taxed in India?
Silver ETFs are taxed as non-equity mutual funds in India. Under current tax rules applicable from April 2023 onwards, gains from non-equity funds—where equity exposure is below 35%—are taxed at the investor’s applicable income tax slab rate, irrespective of the holding period.
This means the earlier indexation benefit available for long-term capital gains no longer applies to newly purchased units. Short-term and long-term gains are treated similarly for taxation purposes. Dividend income, if any, is also added to the investor’s income and taxed as per slab rates. Given the tax structure, silver ETFs are better suited as tactical allocations rather than long-term tax-efficient compounding vehicles compared to equity-oriented funds.
Key Risks
Price Fluctuations: Industrial demand, market mood, and geopolitical developments can all affect silver prices.
Limited Control: Investors don’t have direct control over the silver assets when investing through a fund; they depend on the fund manager’s strategy.
Tracking Error: Occasionally, expenses and inefficiencies cause the ETF to not move in lockstep with silver prices.
Counterparty Risks: Using derivatives increases the possibility that the counterparty may not fulfill their end of the bargain.
Tax Burden: Since silver ETFs are treated as debt securities rather than equity mutual funds, short-term investors may face higher taxes.
Conclusion
Investing in Silver ETFs can be an attractive option for those looking to diversify their portfolios and gain exposure to precious metals. However, potential investors should carefully consider their risk tolerance, investment goals, and the current market landscape. As always, consulting with financial experts before making investment decisions is advisable.
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