Silver Futures vs Silver ETFs: Which Is Better for Investors?

What Are Silver Futures and Silver ETFs?

Silver Futures are derivative contracts traded on commodity exchanges (in India - MCX) where the parties to the contract agree to buy or sell silver at a set price on a future date. Futures contracts are primarily used by traders to speculate or hedge.

Silver ETFs (exchange-traded funds) are funds traded on stock exchanges holding either physical silver or silver-backed instruments. The ETF's net asset value reflects the value of the silver or silver-backed instrument. The investor buys and sells ETF units similar to stocks.

2025 Silver Performance Context, this year, silver has outperformed gold, increasing from approximately $28.92 to $51.07 per ounce - a 69% gain. Gold gained approximately 56%. In India, ETFs have also shown strong gains and are often showing around 54% for the year to date.

Recently, silver ETFs have shown substantial premiums over NAV or even begun to diverge from futures prices, even when prices were changing and ETFs were closed for the day or overnight markets.

For example, a silver ETF increased intraday by nearly ~9% while futures were decreasing due to the timing of when the ETFs opened and possibly a mismatch in demand. In summary, this raises a key risk in liquidity and pricing discrepancies in ETF markets.

FAQs

How do Silver Futures and Silver ETFs differ?

Silver futures are agreements between a buyer and a seller, in which the buyer agrees to take delivery of silver in the future at some predetermined price. Futures are generally used for speculation or hedging.

Silver ETFs, on the other hand, are funds traded on exchanges that are backed by silver or silver-related instruments. Investors have the ease of buying an ETF and gaining exposure to silver without the burden of taking delivery of the physical metal.

Is it better for long-term investors to use Silver Futures or Silver ETFs?

Generally, Silver ETFs would have higher applicability for long-term investors because they don't carry as much complexity, risk, or oversight as managing a futures agreement.

Silver futures are more applicable for experienced traders seeking to earn a profit based on short-term price changes and leverage. Futures also have relatively high risk exposure and the potential for material downside loss.

What are the risks of investing in Silver Futures?

Silver futures are quite risky because of leverage, margin calls, expiring contracts, and price fluctuations. They involve regular monitoring and are usually more suitable for experienced investors who understand derivatives.

Are Silver ETFs safe and regulated?

Yes, Silver ETFs are regulated by regulatory authorities (like SEBI in India) and usually invest in 99.99% pure silver stored in a secure vault. They have transparent prices and are typically a safe and passive investment option for retail investors.

What are the tax benefits for Silver Futures and Silver ETFs in India?

Silver ETFs are taxed the same way as debt mutual funds with a 20% long-term capital gains tax, with indexation benefits, if held longer than 36 months. Silver futures will be taxed as business income or capital gains, depending on the trading approach and the frequency of trading.