Silver ETFs average return 32% in 1 year! What’s behind this unprecedented surge?

In the past one year, gold and silver investments, including exchange-traded funds (ETFs), have comprehensively beaten equities in terms of returns. Especially silver, which has always remained under gold’s shadow, has given even better returns than the yellow metal. Physical silver yield in the last one year stood at 30% and that of gold at 25.5%. If we look at best-performing silver and gold ETFs in the past one year, the returns mirrored the yields in both these metals, with 24.64% and 33.13%, respectively.

In this article, we will look at returns of 12 silver ETFs in the past one year and factors that led to an upbeat demand for these funds.

Silver ETFs registered an unprecedented surge with the Assets under Management (AUM) growing by over four-fold to touch Rs 12,331 crore in October 2024, up from Rs 2,844.76 crore in October 2023, according to a report by ICRA Analytics.

Also read: Silver prices up over 42% since last Diwali, seen breaching Rs 1,20,000 per kg soon! What’s driving the rally

What has attracted investors towards silver ETFs?

While gold ETFs have been in the market for quite some time now, silver ETFs, which were launched as recently as 2022, have managed to garner attention of the investors within a reasonably short period of time as it is more accessible and transparent for retail investors, said ICRA Analytics.

“Interestingly, the total number of folios under Silver ETFs increased by nearly 215% to touch 4.47 lakh in October 2024, up from 1.42 lakh in the same period last year. Net inflows grew by 24% at Rs 643.10 crore in October 2024, as against Rs 518.02 crore last year,” the report said.

According to Ashwini Kumar, Senior Vice President and Head Market Data, ICRA Analytics, number of Silver ETFs, which stood at 8 in April 2023, has increased to 12 in August 2024. “If domestic inflationary pressures and geopolitical instability continue to persist, then silver may continue to witness upbeat demand. The market may see the launch of more Silver ETFs in the coming months as its role in investor portfolio diversification, investment and management becomes more crucial.”

“Silver ETFs managed to garner attention of the investors within a short period of time. It is being increasingly preferred over physical form as investing in physical silver is challenging due to storage related issues. Moreover, buying of physical silver may incur GST costs which unregistered dealers may have to pay out of pocket. Investing in silver ETFs is relatively easy compared to that of traditional methods of investment in physical silver and they have better liquidity compared to that of the physical options as they are listed on the exchange thereby allowing investors to buy and sell units easily. Lastly, price efficiency of Silver ETFs is better compared to traditional physical options,” Kumar said.

Also read: Top 7 gold ETFs with nearly 17% annualised returns in 3 years

Yields of 12 silver ETFs over 1 month, 3 months, 6 months and 1 year

The average returns for a 1-month, 3-months, 6-months and 1-year period was in the range of 7.57%, 16.02%, 20.25% and 32.49%, respectively. This is in contrast to an average return of 5.32%, 14.29%, 10.29% and 28.07% generated by gold ETFs over 1-month, 3-months, 6-months and 1-year duration, respectively.

“Silver prices are expected to remain attractive as the expectation is that the U.S. Federal Reserve will continue to cut interest rates in the coming months giving a boost to silver prices. Besides, geopolitical tensions may prompt risk averse investors to invest in safe-haven assets like silver,” says Kumar.

“Demand for silver is expected to remain upbeat due to its usage in electronics and green technologies. Moreover, investors often prefer investment in silver for portfolio diversification and it is often seen as a hedge against inflation. This apart, cut in customs duty and change in taxation structure has made silver investment more attractive,” Kumar added.