Why You Should Invest in Silver ETFs

1. Why You Should Invest in Silver ETFs Silver, just like gold, holds a special place in Indian culture as an auspicious metal. People often purchase silver jewelry during festive occasions such as Diwali, Dhanteras, Ugadi, and New Year celebrations. It's also a popular gift, especially for kids, and for decorative items like deity figurines. Interestingly, in developed markets, silver is seen as an investment asset class, similar to gold. While gold ETFs have been around in India for a while, silver ETFs are a newer addition to our financial market. Let's dive into the world of silver ETFs in this blog. What are the reasons why physical silver might not be the best investment option? Traditionally, in India, people have typically bought silver in its physical forms like jewelry, bars, or coins. While these are perfect for wearing or decorating, they're not the best for investing. One major hitch is the impurities often found in physical silver, which can eat into your profits when you sell. Silver jewelry especially needs regular upkeep like polishing to keep it looking good. And don't forget the extra cost of storing silver safely, usually in bank lockers, which can be pricier than storing gold because silver takes up more space relative to its value. What are the reasons for considering silver as an asset class for investment? Silver, just like gold, is considered a reliable store of economic value and a smart long-term investment. It's known to hold its purchasing power over time, making it one of the go-to safe assets in India.

2. Besides its role in jewelry and coins, silver finds its way into solar panels, smartphones, electric vehicles, and various industries. With the ongoing advancements in technology, the demand for silver in industrial applications is projected to surge significantly. Yet, the supply of silver is constrained, making it an attractive investment option. Considering this, investing in silver as an asset class could potentially yield higher returns over the long haul. Adding silver to your asset allocation can help diversify the risk in your portfolio since it has a low correlation with equities. This means that when stock prices are soaring, silver can provide stability to your portfolio, acting as a buffer against market volatility. So, if you are feeling uneasy about high equity valuations, consider including silver to make your portfolio more robust. Diversifying your investments across various asset classes known as asset allocation, is a wise strategy to reduce portfolio risk. Both gold and silver can play a role in your asset allocation plan. They have low correlations with equities, which means they can provide stability to your portfolio across different investment cycles. Silver tends to outshine gold during bull markets because its demand for industrial purposes grows with economic expansion. Therefore, incorporating silver into your investment portfolio can offer further diversification benefits. What are the methods for investing in silver as an asset class? Investing in a Silver ETF is a smarter and more cost-effective approach compared to dealing with physical silver. With ETFs, you avoid the headache of impurities, maintenance, and storage costs that come with the physical stuff. Plus, they're way more convenient, cost-effective, and liquid, making them a hassle-free investment option. What are Silver ETFs? A Silver ETF is a financial tool that mirrors the price movements of pure silver. These ETFs typically invest in either physical silver or silver-related instruments. In India, the Securities and Exchange Board of India (SEBI) only allows Silver ETF funds to invest in physical silver bars weighing 30 kg each, with a purity of 99.9% according to the London Bullion Market Association (LBMA) standards. Additionally, SEBI permits ETFs to invest in Exchange Traded Commodity Derivatives (ETCDs) with silver as the underlying asset, but with exposure limits capped at 10% of the Net Asset Value (NAV). This is to account for the potentially higher expenses associated with ETCDs, depending on the investment strategy. Essentially, investing in any Silver ETF in India ensures you're getting silver of very high purity. How to invest in Silver ETFs?

3. To invest in a Silver ETF Fund, you will need to have Demat and trading accounts set up. Once you've got those sorted, you can easily buy or sell Silver ETFs at market services through your stockbroker on the stock exchanges. While Asset Management Companies (AMCs|) typically don't offer SIP facilities for ETFs, some stockbrokers do provide similar options for investing in ETFs. So, if you're keen on investing systematically from your regular savings into Silver ETFs, it's worth checking with your stockbroker for those possibilities. How can one invest in Silver ETFs? During the New Fund Offer (NFO) phase of an ETF, you can jump in and subscribe at its par value. Once that window closes, the ETF hits the stock exchange and starts trading like regular company shares. So, post-NFO, you can snag Silver ETF units on the stock exchanges through your Demat and trading account, all at the going market prices. But here's the twist: while the AMC dishes out NAVs of ETFs at day's end, market prices during trading hours might not line up exactly with the NAV. However, for actively traded or liquid Silver ETFs, you won't see much divergence between market prices (bid/ask) and NAVs. The cherry on top? There's no strict minimum investment amount in Silver ETFs. You can grab as few as one unit or as many as you want, depending on your needs. And if you're into bulk buying, you can even snag Silver ETF units directly from the AMCs at the prevailing NAVs, as long as you're buying in lot sizes, which they call creation units. The specific lot size (creation unit) of an ETF is spelled out in the Scheme Information Document (SID). How can investors sell their Silver ETF shares? You've got options when it comes to selling your silver ETF units. You can offload them on the stock exchange at the current market (bid) prices using your Demat and trading account. Just remember, the market price might not match up exactly with the NAV we talked about earlier. Alternatively, if you're dealing in lot sizes (creation units), as outlined in the Scheme Information Document (SID), you can redeem your ETF units with the stock exchange at the prevailing NAVs. But here's the scoop: the lot sizes for ETFs tend to be pretty hefty compared to what the average retail investor might be used to. What are the tax rules governing Silver ETFs? Here's the deal with Silver ETFs and taxes: If you're in it for the long haul and hold onto your Silver ETFs for at least 3 years, you'll be eligible for long-term capital gains

4. tax. But if you decide to cash out before that 3-year mark, any profits you make will be treated as regular income and taxed based on your income tax rate. Now, for the long-term holders, once you hit that 3-year milestone, you will face a long-term capital gains tax rate of 20%. But don't fret just yet! You get to enjoy indexation benefits, which can help lower your tax bill by adjusting the purchase price for inflation. An Investor Education and Awareness Initiative brought to you by Azuke Global Investment Advisors. We're here to help you navigate the world of investing with knowledge and confidence. Note - Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.