Best Silver Mutual Funds

The following categories of investors should consider these funds. 

• Conservative investors- Silver is a relatively stable and safe investment. Hence, those who are conservative by nature or have low risk tolerance may find these funds worthwhile.
• Beginners- Newbies can consider silver mutual funds to build long-term wealth. These funds come with more accessible entry points as well. 
• Long-term players- Silver prices have gone up steadily over the years and have weathered economic uncertainties successfully as well. Those with a long-term investment horizon may consider investing in these funds too. 
• Those who want portfolio diversification- If your portfolio mainly comprises equity and debt instruments, you can diversify it and spread out risks with silver mutual funds. 

Factors to Consider Before Investing in Silver Mutual Funds

Here are some of the factors to consider before you invest in silver mutual funds.

• Your goals- Determine what you want from the investment, be it hedging against inflation, building long-term wealth, or diversifying your portfolio. 
• Fund objectives- Check the objectives of the fund to confirm whether it syncs with your financial goals. 
• Risk tolerance and investment horizon- Examine the fund’s performance carefully and see whether it fits your risk tolerance levels or not. Also, look at the investment horizon and whether it matches your own goals. 
• Reputation of the fund house- Choose silver mutual funds from reputed fund houses or investment platforms only. They should have proven track records in managing commodity investments. 
• Investment costs- Factor in the added costs like expense ratio, demat account charges, taxes, brokerage costs, etc. 
• Transparency- The provider should disclose everything about the fund’s holdings regularly. This transparency will help you stay in the loop and lower risks simultaneously.
• Key metrics- Some of the metrics worth looking up include returns over time, volatility, liquidity, and assets under management (AUM).  

Major Advantages While Investing in Silver Mutual Funds

Some of the key benefits of investing in silver mutual funds include the following: 

• Higher convenience- Silver mutual funds help you gain entry easily into the precious metal segment without worrying about physical purchases, storage, purity, etc. You may start investing with smaller amounts as well. 
• Cost-effective- These funds have lower expense ratios and associated costs. 
• Diversification- You can use these funds to diversify your portfolio and lower risks. 
• Transparency- Silver ETF prices are directly connected to the domestic rates of silver. This ensures higher transparency, while helping you monitor your investment value in real-time. 

Risks Involved While Investing in Silver Mutual Funds

Some of the key risks include the following: 

• Volatility in prices due to geopolitical and global economic factors, along with market sentiment and inflation rates. 
• Currency rate fluctuations may impact the value of silver ETFs and your mutual fund units in turn.
• Silver mutual funds are also subject to market risks arising from any adverse or unexpected economic event. 
• These funds majorly invest in ETFs which are passively managed by fund houses. Inefficiency in managing or even a high expense ratio may lead to a discrepancy between the actual silver price and the performance of the ETF. It is called a tracking error, which leads to lower returns.

Taxation of Silver Mutual Funds

Silver ETFs in India are taxed just as gold ETFs. Prior to April 1, 2023, silver ETFs with holding periods of 36 months or less will have profits taken as short-term capital gains. They will be added to your income and taxed as per your applicable income tax slab. For holding periods higher than 36 months, they will be taken as LTCG (long-term capital gains) and taxed at 20% with indexation benefits. 

For ETFs between April 1, 2023 and March 31, 2025, all gains will be taxed as per the applicable income tax slab rates, irrespective of their holding periods. After April 1, 2025, STCG will be as per the income tax slab rate, while LTCG will be 12.50% without indexation benefits.