Silver exchange-traded funds, digital silver gain momentum among investors

Silver exchange-traded funds (ETFs) and digital silver have been gaining favour among investors recently.

Silver ETFs, mutual fund schemes dedicated to investing in silver, clocked an average return of 26.08% in 2024 so far, as per an analysis. There were about 17 schemes in the market in the said period.

Silver ETFs are investment funds that are traded on stock exchanges and aim to mirror the price performance of silver. Silver funds provide investors exposure to the price movements of silver without having the need to physically own the metal.

Silver prices have been up 33% in 2024 so far, which is at an all-time high. In fact, silver prices have outperformed gold in May and 2024 so far.

Introduced in 2022, silver ETFs are relatively new entrants to the mutual fund universe. Silver ETF investments require one to have a demat (dematerialised) account with a starting price of ₹500.

As per the markets regulator Securities and Exchange Board of India (SEBI) norms, a silver ETF must invest about 95% of its net assets in silver or silver-related securities, with silver being the primary underlying product. This ensures that the silver fund’s performance closely mimics the price movements of the metal

Factors influencing the performance of silver funds

A sharp spurt in prices of silver has resulted in the silver commodity-based funds topping the return charts in the calendar year. The prices of both gold and silver have run up recently on account of geopolitical uncertainties and hopes of the US Fed rate cuts. Beside, increasing demand from green economy applications, particularly in the photovoltaic sector, have led to a further push to silver prices.

On the other hand, digital silver is a new investment option that has drawn the interest of investors, especially millennials. An investor can buy 999.0 pure silver and store it for free in government-trusted vaults for precious metals. The lowest ticket size an investor can buy is ₹100. An investor buying digital silver only has the option of selling silver to the company that sold it to them. Therefore, digital silver has less liquidity, unlike physical silver which can be sold to thousands of dealers across the globe.

For those planning to invest in silver, they must allow this commodity at least one-year runway. Percentage-wise, silver has shot up almost 26% over the past few weeks.

Silver price: Per gram/kg in India (₹)