Gold and Silver ETFs: Here’s What you Need to Know

“Never depend on a single income. Make an investment to create a second source” – Warren Buffett. 

Isn’t it exciting when you get additional income in the form of a bonus or incentives? Spending it all is an enticing thought, but we all know how important it is to save that money for our future. However, keeping this amount in the bank account is not always the best option. You need your money to make money for you and this is possible only through investments.  

The wide range of choices can surely baffle anyone. You can opt for the safer debt funds and fixed deposits or choose to be a little more daring and ride the up and downs of the market with mutual funds (MF) and crypto currencies. So, what should you invest in? But what if we told you that you have more options apart from these familiar sources. Have you considered putting your money in exchange-traded funds (ETF)? 

What are ETFs?

These funds pool resources from multiple people and buy tradable assets like debt securities and shares. They carry traits of MFs as they track selected indexes, assets, sectors, and commodities. Meanwhile, they possess the nature of shares, as they can be bought and sold as required during the equity trading period. Fund managers generally trade ETFs as shares in the stock market through creation blocks. 

ETFs are listed in major stock exchanges like the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Furthermore, their net asset value (NAV) depends on the market’s movements. These are excellent options for individuals who do not have advanced knowledge of the stock market. Individual investors prefer these funds as they come with a lower fee and have higher liquidity than MFs. 

Gold & Silver ETFs:

Another fund popular among the public is the gold and silver ETF. In this case, each traded fund stands for the physical metal in paper and digitised forms. This means that the individual trades the stock instead of buying the actual metal. When a share is sold, the investor receives the monetary value of the gold or silver instead of the actual metal. One gold or silver represents one gram of the actual metal. This is guaranteed by an investment of up to 99.5% of pure physical gold for gold ETFs and about 95% pure physical silver for silver ETFs.  

Silver and Gold ETFs act as a safety net for investors against market fluctuations and inflation. This is because their rates depend on rupee exchange rates and global prices rather than the inflation prevalent in the country. These EFTs also help individuals save money on storage as fund houses manage the physical metal.  

Benefits of Gold & Silver ETFs:

• Effortless Trading 

The procedure for purchasing and selling gold and silver ETFs is like trading stock-based funds. If the help of an ETF fund manager or broker is involved, the process becomes completely hassle-free. Investors can trade these funds during the working hours of the day. 

• Taxation 

Except for the long-term gain tax, no other tax is applicable on trading silver and gold ETFs. This means no value-added taxes (VAT) or securities transaction tax is charged when dealing with these funds. Gold ETF investors further save money on taxes because they are not liable to pay wealth tax, whereas you need to pay wealth tax when you purchase the actual metal. 

• Entry/Exit Loads 

Only 0.5% to 1% of brokerage is applicable on transactions and there are no entry or exit load charges. Hence, no additional money is payable on buying and selling these ETFs.  

Gold ETF vs Silver ETF – The Difference:

• Loan Security 

Gold ETFs can be used as security against a secured loan borrowed from a financial institution. The process is convenient and less time-consuming. On the other hand, silver cannot be used as collateral in case of debt. 

• Price 

Silver ETFs are cheaper compared to gold ETFs. Their prices are even lower than the actual metal although the difference the difference isn’t much. However, it becomes an important factor to consider when purchasing these funds.  

• Volatility 

As mining of gold is expensive, the metal trades off at high volatility. Its demand is higher, while the supply is limited, impacting its rates. On the other hand, silver is more widely used in industries, as investments and jewellery. It is more volatile than gold and closely linked to the industrial economy. 

• Liquidity and Returns 

Gold ETFs can be liquidated more easily than silver ETFs. A person will likely get higher returns in gold exchange-traded funds if kept for more than a year. Meanwhile, silver ETFs provide a moderate return as it does not undergo significant changes due to its vast demand and availability. 

Other Types of ETFs to Consider:

There is a wide variety of ETFs available for you to choose from. You can select the right investment plan based on your preferences and financial requirements.  

1. Equity ETF – It is one of the most common funds in which, the money is invested in shares of various companies. 

2. Debt ETF – These funds put your money in fixed-return financial instruments like government bonds and debentures.  

3. Currency ETF – To make the best of fluctuations in exchange rates, people prefer to invest in currency ETFs. Under this, multiple nations’ currency is purchased after analysing and predicting the respective currency’s performance. These depend solely on stock market changes and that nation’s economic and political trends.  

4. Sector ETFs – As the name suggests, these funds focus on one sector. An ETF in the automobile industry will include only vehicle manufacturing and relevant companies in its portfolio. Similarly, under commodity ETFs, the investment is based on a particular commodity like crude oil, for example. 

Silver or gold? Don’t worry. You don’t need to take the decision right this moment. Hopefully, the features, similarities, and differences above have helped you better understand the two ETFs. Select the fund which fits into your investment plans and enjoy the returns. If you wish to try other options to multiply your savings and enjoy the sweet benefits, head over to Bajaj Markets. Check out our various investment plans, from fixed deposits to mutual funds.