Silver ETF India (ICICI Direct,NSE,Kotak,SBI,HDFC) – How to Buy the Best,Taxation,Comparison vs Physical Silver

Silver ETFs in India have started making their debt after the rip roaring success of gold etf funds in India.All the major mutual fund houses in India have launched gold ETFs as a large part of the investing population has made ETFs the preferred vehicle for investing in Gold.Their are 12 gold ETFs in India which is far the largest sector ETF in India.In fact,ETFs in India are marked by their lack of depth and variety.There are only a handful of decent ETFs in India which have good volume and liquidity though more asset management companies are coming out with ETFs.Goldman Sachs recently bought Benchmark AMC which has the most successful gold ETF and the biggest Nifty ETF in India.India Infoline is also targeting ETFs to boost its AUM.

India’s first ETF is supposed to be launched by Goldman Asset Management as well which will invest the proceeds in foreign ETFs and ETNs.This will be done because their are regulations against custodians holding silver unlike gold ETFs.Note most of the gold ETFs hold physical gold of more than 99.5% purity through custodians like Nova Scotia and others.

Why Silver ETFs are having a tough time

There is little doubt that silver ETFs in India will get a massive response so why have not AMCs launched silver ETFs in the country.Note India is one of the biggest traders in silver futures after the US market.Billions of dollars are traded in silver futures on the MCX exchange.So there is great potential for silver ETFs in India.The reason is that India’s regulators are fighting their turf wars in silver ETFs.The Securities and Exchange Board of India (SEBI), the country’s capital markets regulator, also regulates gold ETFs, which are currently traded on the National Stock Exchange.Regulators are trying to decide whether silver ETFs should be overseen by SEBI or the commodity markets regulator, the Forward Markets Commission.Goldman Sachs Asset Management (which was Benchmark ) has been waiting to launch the silver ETF for a long time but the government approval has yet to come

Silver ETFs how to buy through ICICI Direct,Kotak and HDFC

Since there are no Silver ETFS listed on the NSE,the other way to invest in silver ETFs is to take a roundabout way by investing in silver ETFs in  the US market through international trading accounts from ICICI Direct,Kotak and HDFC.Note RBI allows upto $200,000 in foreign investments of stocks and bonds every year.So its perfectly legal to make an investment of upto Rs 1 crore every year in foreign silver ETFs through your preferred broker.Note you have to take care of the taxation issues and foreign currency fluctuations as well.This is the main reason that Indian prefer to invest in the Indian stock markets and not the foreign ones.The brokerage and transaction costs are also much higher in case of investing in US stock market than Indian ones.

Best Silver ETF to invest in – SLV

iShares Silver Trust (SLV) is the biggest silver ETF in the world and is managed by  BlackRock Asset Management. The iShares Silver Trust is not a standard ETF.The assets of the Trust consist primarily of silver held by the custodian on behalf of the Trust. The objective of the Trust is for the value of the iShares to reflect, at any given time, the price of silver owned by the Trust at that time.The trustee of the Trust is The Bank of New York Mellon  and the custodian of the Trust is JP Morgan Chase Bank.

SLV holds around $10 billion in assets making it one of the largest ETFs in the world and was started in 2006.The Silver ETF  holds around 10,000 tons of silver and has an expense ratio of only 0.5%

Silver Bars

HDFC Bank has RBI approval to retail silver to its customers.HDFC sells “Mudra” – Pure silver bars  in 50 gm weight.Mudra Pure Silver is of 24 Karat, 99.99% purity silver.Both, HDFC Bank Customers and non-HDFC Bank customers are eligible to buy silver.The big disadvantage of silver bar from HDFC is that HDFC Bank does not buy the silver sold by them

e-Silver through National Spot Exchange Limited

The National Spot Exchange Limited (NSEL) has introduced E-series products in commodities which allow retail investors to trade and invest in commodities just like they do in equities..To trade in E-silver the investor has to open a demat account with one of the Depository Participants (DPs).The futures unit of silver is 100 grams of silver

Silver ETF Comparison vs Physical Silver

1) Genuineness –  When you are buying silver, a buyer has to make sure he buys it from a trustworthy source, lest he gets silver of lesser purity. There have been instances when one has paid for a higher quality silver bar and has got lower quality. This cannot happen in the case of a Silver ETF as this is taken care of by professional custodians

2) Convenience – Buying and Selling of silver ETFs is very easy and can be done by simply one click of the mouse.Physical silver on the other hand involves finding a buyer and transaction costs and time.There is also the problem that you have to test it both while buying and selling.

3) Storage – In Silver ETFs ,the problem of storing the silver is taken care of by the trust or the asset management company.You don’t have to worry about the security or the maintained.This is not the case with physical silver where you have to store it and also worry about its security.

4) Taxation – While no Silver ETFs have been issued in India yet,the taxation in India for silver ETFs should be similar as both are precious metals with roughly similar uses as a store of wealth.Physical gold needs to be held for three years or more to be eligible for long-term capital gains.But in case of Gold ETF it needs to be held only for one year

5)  Counterparty Risk – In case of silver ETFs,there is always the danger that the asset management company by some stupid mistake loses your gold investments either through fraud (not a black swan considering corruption in India and mutual fund companies) or through extreme stupidity

6) Tracking Errors – There is always some tracking error between the silver price and the silver etf just as it is there in case of all exchange traded funds.There is always some amount of under performance of the silver etf compared to the silver price.