Silver ETF: What is a Silver ETF, how to invest in it, and what kind of returns can you expect? Here are all the details..
When it comes to investing in precious metals, gold is usually the most talked-about. However, in recent times, silver has also started attracting investors' attention, especially due to its industrial demand and potential for price growth. Buying physical silver sounds appealing, but handling, storing, and worrying about its purity can be quite challenging. This is where Silver ETFs emerge as an easy and smart alternative, allowing you to invest in silver without actually owning the physical metal. Let's understand what a Silver ETF is, how it works, and whether it should be a part of your investment portfolio.
What is a Silver ETF?
A Silver ETF is a mutual fund that tracks the price of silver and is traded on the stock market. Instead of buying silver bars or coins, you buy units of the ETF that represent the value of silver. This means that if the price of silver increases, the value of your ETF also increases. In simple terms, a Silver ETF allows you to invest in silver without the worries of storage, security, and purity, and you can easily buy and sell it through your demat account.
How does a Silver ETF work?
When you buy ETF units through your demat account, your money is invested in silver or related instruments. If the price of silver increases, the value of your ETF will also increase, and you can sell it in the market whenever needed. For example, if you bought 100 units at ₹70 per unit, investing ₹7000, and the price of silver increased by 10%, your ETF value could also increase to approximately ₹7700.
Advantages of Silver ETFs
Silver ETFs are particularly beneficial for investors who want to start investing with a small amount. While buying physical silver requires purchasing at least a few grams, with ETFs, you can start with just a few hundred rupees. This is why its popularity is growing among young investors and the new generation. The biggest advantage of a Silver ETF is its liquidity. You can buy and sell it anytime during market hours. Also, the pricing is completely transparent as it is directly linked to the market rate. This eliminates the risks associated with storage, theft, and purity.
Risks in Silver ETFs
Silver ETFs also come with some risks. Silver prices can fluctuate sharply due to its use in industrial sectors. Additionally, the ETF's return may show a slight difference (tracking error) from the actual market price, and buying silver through an ETF does not give you the right to demand physical silver. Nevertheless, experts believe it can be a good option for medium and long-term investors. It provides portfolio diversification and also helps hedge against inflation.
Popular Silver ETFs
Nippon India Silver ETF, ICICI Prudential Silver ETF, Aditya Birla Sun Life Silver ETF, HDFC Silver ETF, and Kotak Silver ETF. In conclusion, if you want to invest in an alternative metal other than traditional gold and avoid the hassles of physical silver, a Silver ETF can prove to be a reliable and convenient option.
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