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Silver ETF vs. Silver Fund of Funds (FoF): Which Should You Choose?

Silver ETF vs. Silver Fund of Funds (FoF): Which Should You Choose?

When planning to invest in silver via mutual fund, you have two options: Silver Exchange Traded Funds (ETFs) and Silver Fund of Funds (FoFs). While both allow you to invest in silver without storing physical metal, they function differently and suit different types of investors.

What is a Silver ETF?

A Silver ETF is a fund that tracks the domestic price of physical silver subject to tracking error. These funds are backed by physical silver holdings, allowing investors to gain exposure to the metal's price movements without handling heavy bars or coins.

Key Requirement: To invest in a Silver ETF, you need a Demat account and a trading account, as these funds trade on stock exchanges like shares.
Liquidity: You can buy and sell units during market hours subject to trading volumes.

What is a Silver Fund of Funds (FoF)?

A Silver Fund of Funds (FoF) is a mutual fund scheme that invests its corpus into a Silver ETF. Essentially, it is a fund that buys units of another Silver ETF.

SIP Friendly: While you can do SIPs in ETFs via a few broker platforms, FoFs are conducive to automated Systematic Investment Plans (SIPs) directly from your bank account, making disciplined investing easier.
Convenience: When investing in an FoF, you do not need a Demat account. You can invest directly through the fund house or a mutual fund distributor, just like any other mutual fund.

Key Differences between Silver ETFs and Silver FoFs

Feature	Silver ETF	Silver Fund of Funds (FoF)
Demat Account	Mandatory. You cannot invest without one.	Not Required. You can invest directly via AMC/Distributor.
Trading & Price	Trades like a stock in real-time during market hours.	Bought/Sold at the end-of-day NAV, like a mutual fund.
Expense Ratio	Generally lower as there is only one layer of management fee.	Slightly higher as it includes the underlying ETF cost + FoF management fee.
SIP Convenience	Requires the facility to be offered by the broker; manual intervention is often needed.	High. Facility offered by the AMC. Supports automated monthly debits directly from a bank account.
Minimum Investment	Price of 1 unit (fluctuates with market price).	May vary across schemes - Fixed amount (e.g., ₹100) etc., making it accessible.

Which One Should You Choose - Silver ETFs or Silver FoFs?

If you already have a Demat account and prefer trading during market hours, a Silver ETF offers a cost-effective, direct route. However, if you prefer investing without a Demat account or want to set up a hassle-free SIP, a Silver FoF might be the better choice.

Conclusion

Both instruments offer a great way to diversify your portfolio with silver, which has unique industrial applications and growth potential. The choice ultimately depends on your preferred mode of investment and whether you hold a Demat account.

Frequently Asked Questions (FAQs)

1. Is there a difference in taxation between Silver ETFs and Silver FoFs?

Yes, the primary difference lies in the holding period.

Silver ETFs: Since they are listed securities, if you hold them for more than 12 months, the gains are treated as Long-Term Capital Gains (LTCG) and taxed at 12.5% without indexation.
Silver FoFs: Being unlisted mutual fund units, you typically need to hold them for more than 24 months to qualify for LTCG (taxed at 12.5%).
For both, if sold before these respective periods, the gains are treated as Short-Term Capital Gains (STCG) and taxed according to your income tax slab.

2. Do I need a Demat account for Silver FoFs?

No, you do not need a Demat account to invest in a Silver Fund of Funds (FoF). You can invest in an FoF just like any normal mutual fund scheme directly through an AMC or a distributor. However, a Demat account is mandatory for investing in Silver ETFs as they trade on stock exchanges.

3. Which option is suitable for SIPs: Silver ETF or Silver FoF?

While you can set up SIPs for both, a Silver FoF is often considered more convenient for Systematic Investment Plans (SIPs). In an FoF, the SIP amount is auto-debited from your bank account. For ETFs, you generally need to invest through your broker, though some brokers may offer SIP-like features for ETFs.

4. Which option is more cost-effective - Silver ETFs or Silver FoFs?

Generally, Silver ETFs have a lower expense ratio compared to Silver FoFs. This is because a Fund of Funds (FoF) incurs two layers of costs: the expense ratio of the underlying Silver ETF it invests in, plus its own management fees. Therefore, direct investors often find ETFs slightly cheaper.

5. What is the minimum investment amount for Silver ETFs and Silver FoFs?

For a Silver ETF, the minimum investment is the price of 1 unit on the stock exchange, which fluctuates with market prices. For a Silver FoFs, you can start investing with a fixed amount, often as low as ₹100 via SIP or lumpsum (may vary across schemes).

Disclaimer - Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Published on Dec 17th, 2025