Gold ETF vs Silver ETF- A Brief Comparison

Buying and holding gold and silver in the form of coins, jewellery and bars are an age-old tradition in India. These are not only signs of wealth and prosperity but act as saviours in times of market downturns. 

However, physically holding these precious metals come with significant risks and worries. Owners must take special care of their security. Failure can lead to theft and immense financial losses. This is why many investors prefer gold and silver Exchange Traded Funds (ETFs). 

With these financial instruments, you can take exposure to gold and silver without the downsides of physically storing them. 

Wondering whether to invest in gold or silver ETFs? The following sections will tell you everything you need to know.

What Are Gold ETFs?

Like other ETFs, gold ETF is a unique financial instrument whose underlying asset is physical gold. These are passive tools of investment that track domestic prices of gold. Gold ETFs work in a similar way to open-ended mutual funds but can be traded on the stock exchange just like any stock.

Gold ETFs are documents, contracts, or certificates present in the form of paper or electronic certificates. These derive their value from the material gold that acts as their underlying asset. 1 gold ETF unit equals 1 gram of standard gold bullion of 99.5% purity. Any investor willing to invest in gold can purchase and sell gold ETFs instead of the physical metal.

Gold ETFs offer a convenient way of investing in gold as investors do not need to spend an enormous amount on storing or transporting their investments. They can buy or sell gold ETFs freely on the stock exchange. 

This means, investors only need an active Demat account to hold their gold ETFs in digital form and instantly transfer them whenever required. By trading with gold ETFs, one can earn ROI equivalent to one unit of physical gold without actually holding them in physical form.

What Are Silver ETFs?

Like gold ETFs, silver ETFs are financial assets that invest at least 95% of their total assets in physical silver as their underlying asset. The price of silver directly influences the net asset value (NAV) of silver ETFs. This means that the value of this asset rises and falls along with the value of physical silver as per their demand and supply.

Like all other ETFs, you do not need to purchase or hold this metal in physical form. This eliminates the extra cost and worry of safekeeping the silver. It is the fund manager who holds this physical silver under secured vaults. SEBI mandates these fund managers to conduct periodic audits and submit a report concerning physical verification of the metal. 

What Are the Major Differences Between Gold ETF and Silver ETF?

Gold ETFsSilver ETFs
These are highly expensive.Silver ETFs are a comparatively cheaper asset class.
Gold ETFs are more volatile.Silver tends to be less volatile.
Gold ETFs carry high liquidity.Silver ETFs are moderately liquid.
They historically bring in more ROI if you hold them for more than 12 months.They historically offer moderate returns due to their lower demand.

Pros and Cons of Gold ETF

Here are the pros and cons that investors face by trading with gold ETFs.

Pros of Gold ETFs

  • They are highly liquid. As a result, purchasing and selling gold ETFs are quite easy.
  • Each unit of gold ETF is derived from pure physical gold. Therefore, you do not need to worry about the metal’s quality.
  • Investing in Gold ETFs eliminates the need for storage and insurance costs associated with physical gold.
  • Gold ETFs also do not carry any wealth tax or transaction tax.
  • You can also use a gold ETF as collateral to borrow money as secured loans.
  • Gold ETF is also an excellent asset that allows traders to diversify their portfolios. They also offer high returns at times of crisis or when other markets are down.

Cons of Gold ETFs

  • Investing in gold ETFs carries significant market risk due to the scarcity of the physical commodity.
  • There are too many heads that manage the working of gold ETFs, this brings a lurking fear of counterparty risks as you are not dealing with physical gold.

Pros and Cons of Silver ETFs

Following are the pros and cons of investments with silver ETF:

Pros of Silver ETF

  • While trading with silver ETFs, you can invest with a minimal amount starting from ₹100.
  • Like gold ETFs, you do not need to worry about storage, theft, or purity of physical silver.
  • Brokerage charges of only 0.5%-1% are usually applicable on silver ETFs. Furthermore, most fund houses do not charge any additional entry or exit loads in silver ETF investments.
  • Trading with silver ETFs is completely hassle-free with the help of brokers and fund managers.
  • You can easily purchase and sell silver ETFs with your Demat account as you do with stocks.
  • Investors consider silver as a safe haven asset that guards them against major losses during crises or inflation.

Cons of Silver ETFs

  • As Silver ETFs have lesser demand than gold ETFs, you cannot expect a very high ROI from these ETFs. 
  • The silver ETF market is also less liquid than the gold ETF market.

Final Word

As we understand the difference between gold ETFs and silver ETFs, we might question which is a better investment. The answer to this is subjective to each individual and their finances. Over a long period, silver ETFs can prove to be the better investment due to their volatility and industrial demand. However, for a pure safe haven asset, risk-averse investors may prefer gold ETFs.

Frequently Asked Questions

What purity standards do fund houses follow for silver ETFs?

London Bullion Market Association makes it compulsory for fund houses to follow a purity standard of 99.99% for silver.

What are the taxation rules for gold ETFs?

Like other capital assets, taxation on gold ETFs depends on their holding period. If you are selling them after a holding period of 3 years, it will earn long-term capital gains and will result in 20% taxes after indexation. On the other hand, if you sell them within 3 years, they will be taxed as short-term capital gains (STCG) according to your income tax slab.

How to sell gold ETF?

You can easily sell gold ETF through your trading and Demat account that you have with a stockbroker or bank. As gold ETFs derive their value from physical gold, you can easily sell them at prices equivalent to the market price of gold.

What are the things to note before investing in a silver ETF?

Before investing in a silver ETF, you must consider its expense ratio and tracking error. You also need to be aware of your risk appetite before investing in gold ETFs.

Credit Principal at Wint Wealth

Vaibhav is Chartered Accountant by profession, having experience of 4+ years in banking & finance sector.
Since past one year associated with Wint Wealth as Credit Principal. Previously worked with Northern Arc Capital for 2 years in FI-Credit Team and AU Small Finance Bank for 1 year in LAP-Credit Team.

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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The article may also contain information which are the personal views/opinions of the authors. The information contained in this article is for general, educational and awareness purposes only and is not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision, whether related to investment or otherwise, taken on the basis of this article.

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