Silver, which is a precious as well as industrial metal, has collapsed from a high of Rs 4,20,000 per kg all the way down to Rs 2,65,000 currently. That’s a loss of over 35%, with most of it being incurred in one single session.
In line with the fall in prices, silver ETFs too have taken a knock. Certain schemes, such as Edelweiss Silver ETF, Axis Silver ETF, Kotak Silver ETF, etc., have fallen even more aggressively.
The price of silver has been so volatile of late that the BSE had to impose a 20% circuit limit on silver ETFs to curb the excessive turbulence. That being said, silver ETFs, on average, are still up over 40% in January 2026.
To my mind, two questions arise.
First, is this the right time to buy silver?
Second, if the answer to the first question is “yes”, then how do I take exposure to it?
Well, the answer to the first can only be known for sure in hindsight.
But the 5-year trend shows that silver has gained over 4x, and in the year 2025 by 165%.
This is because the supply of silver has been in shortage since 2019.
And given that this white shiny metal today finds its application in various sectors [viz. automobiles (in EVs), solar energy (for solar panels), batteries, satellites, semiconductors, 5G technology, medicines, medical instruments, chemicals, etc.], it would probably continue exhibiting its lustre in the long run.
But at what price point you should enter silver, is tough to say.
On the second question, however, we have a clearer view on how one should go about owning silver.
And this is what we will focus on today. Afterall, if you do get the silver call right, you want to be sure you are riding it with the right instrument.
So, which is a better choice – Silver ETFs or physical silver?
Well, both have their pros and cons. Here are some of the distinguishing points.
- Convenience – If you are looking for ease of buying, you could walk into a jeweller’s store and buy physical silver, by way of bars, coins, jewellery, etc. Whereas to buy silver ETFs, you need to open a demat and trading account, and research which is the best silver ETF (with a low expense ratio, tracking error and appealing performance).
- Purity – Silver ETFs are directed to own physical silver of standard 30 kg bars with 99.9% purity, confirming the LBMA Good Delivery Standards. So, there is no question of the quality of the underlying holdings.
Whereas when you buy physical silver, the purity is questionable, unless you are buying a 999.9 bar or coin with a credible certificate confirming the purity and weight.
- Cost of investing – When you buy silver ETFs, you incur a nominal brokerage and expense ratio (usually around 0.5-0.7%). Silver ETF purchases in India do not attract Goods and Services Tax (GST).
Whereas, in the case of physical silver, depending on the form you purchase it in, you are also paying for the making charges. Plus, there is 3% GST on the metal value and 5% GST on making charges.
- Holding/Storage Cost – When you hold silver ETFs, you incur demat account maintenance charges (which are inclusive of your equity and security holdings). The demat account maintenance charges are in the range of Rs 400-900 per annum, on average, depending on the broker. This is lower than what you pay for keeping the physical silver safe in a bank locker.
- Liquidity – Whether you buy silver ETFs or physical silver, the price is a determining factor. In the case of a silver ETF, you can sell it directly on the stock exchange at the prevailing price.
Whereas to sell you physical silver, you need to visit the dealer or silver merchant/jeweller, who will then check the purity of your holding and give a price depending on the market rate.
If the silver merchant/jeweller or dealer questions the quality of your physical silver, you may not really get the market rate. So, you could incur a buyback loss when you sell.
Here is a snapshot of the key points we just discussed.
Strategic Comparison: Liquidity, Tax, and Purity
| Feature | Silver ETFs | Physical Silver |
| Convenience | High: First you need to open a demat + trading account | Moderate: walk into the jewellery store to buy |
| Cost of investing | Low: nominal brokerage + expense ratio, no GST | High: You may GST on metal value + on making charges |
| Holding Cost | Low: annual demat account maintenance charge | High: you pay for bank locker rent for safety |
| Liquidity | High: transact directly on the stock exchange (through your broker) | Low: you need to visit the store and then jeweller may evaluate the purity for buyback. |
| Time to LTCG | 12 months | 24 months |
Now, coming to taxation…
Capital Gain Tax Implications
Selling silver ETF units before 12 months attracts Short Term Capital Gain (STCG) tax, which is levied as your income-tax slab (i.e. at the marginal rate of taxation). If the silver ETF units are sold after 12 months, called Long Term Capital Gains (LTCG), are charged at 12.5% (without indexation) when the gains are more than Rs 1.25 lakh in a financial year.
Whereas, when you sell physical gold (bar, coin, jewellery, etc.), the STCG tax applies when the holding period is less than or equal to 24 months. STCG is taxed as per your income-tax slab. If the sale is after 24 months holding period, the LTCG is taxed at 12.5% (without indexation) when the gains are in excess of Rs 1.25 lakh in a financial year.
| Feature | Silver ETF | Physical Silver |
| GST on Purchase | 0% | 3% |
| Making/Storage Charges | ~0.5% (Expense Ratio) | 10%–20% (One-time + Locker) |
| LTCG Qualification | 12 Months | 24 Months |
| Tax Rate (LTCG) | 12.5% | 12.5% |
So, there is an advantage in holding silver ETFs over physical silver – unless you are considering the latter for a wedding, or to strengthen family bonds (to pass on to legal heirs), or cultural/religious purposes.
Buying physical silver offers advantages, such that you can touch, feel, and see. It is the wealth you hold physically and emotionally. But beyond that, owning silver ETFs is far more advantageous; it is a smart way to ‘invest’ in silver.
In the current times, even certain central banks such as the Bank of Russia, the Saudi Central Bank, and the Reserve Bank of India (RBI) are buying silver as part of their reserve management amidst the de-dollarisation.
The Approach to Follow
In general, it makes sense to allocate around 10-15% of your total portfolio to bullion – gold and silver put together. And even within that, most of that should be in gold.
To the extent you decide to own silver, perhaps the better approach is to own silver ETFs and/or silver ETF fund of funds.
To handle the current intermittent volatility, SIP into silver ETFs makes sense rather than investing a lump sum.
Keep in mind, silver, being an industrial metal, is pro-cyclical. Meaning, its fortune has been closely linked to industrial growth, development, and economic expansion. Given the persistent shortage of silver, it is expected to fare well over the long-term.
In fact, the physical silver price trading at a premium to the spot price in the global market indicates that what we are seeing is profit booking, and the outlook for silver seems positive.
That said, it is important to assume that bullion can be highly volatile. Silver prices have swung wildly in recent days. Price shocks could surely scare you, but as long as you know the underlying fundamentals driving prices, you can be confident enough that your investment will do well.
When you approach silver, keep a longer investment horizon (of 10 years or more). Invest sensibly.
Happy investing!
Note: We have relied on data from www.valueresearchonline.com, www.financialexpress.com, and the factsheets published by the respective fund houses throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing. Rounaq Neroy has over 20 years of experience in the financial markets and investments. He is a close observer of the Indian economy and writes deeply on the capital markets, mutual funds, stocks, precious metals, asset allocation, wealth management, and investment strategy. His editorials provide interesting, actionable investment ideas to guide readers in the journey of wealth creation and make wise decisions. Rounaq was the Head of Content at PersonalFN (Quantum Information Services Pvt. Ltd.), which also owns Equitymaster.com – India’s oldest and trusted equity research house.