Exploring investment in silver? Here're 5 popular methods with pros & cons

Silver prices have been on a steady rise in 2024, retaining its status as a precious metal and offering a hedge against inflation and market volatility. Silver has crossed Rs 84,500 per kg mark for the first time ever mirroring the global trend. Spot silver reached $29.04 per ounce, hitting its highest levels since Feb 2021. During economic uncertainties, investors often turn to precious metals like silver to safeguard their wealth. 

Silver is less expensive than gold. An investor can buy more silver for less money, making it a potentially popular choice for lower capitalisation investors. The metal is also relatively less risky.
 

Let’s have a look at five popular ways to invest in silver:

Silver mining stocks: Investing in silver mining companies gives you exposure to the silver market through stocks of companies engaged in silver exploration, production, and mining. When the price of silver rises, the profitability of silver mining companies tends to go up, potentially leading to higher stock prices. However, investing in individual mining stocks also carries company-specific risks.

Silver ETFs: Silver ETFs, or Silver Exchange-Traded Funds, are investment funds that are traded on stock exchanges and aim to track the price performance of silver. They offer investors exposure to the price movements of silver without physically owning the metal. 

As per Sebi guidelines, a Silver ETF must invest at least 95 per cent of its net assets in silver or silver-related securities, with silver being the primary underlying product. This ensures that the fund’s performance closely mirrors the price movements of silver.

Silver futures contracts: Futures contracts allow investors to speculate on the future price of silver. These contracts obligate the buyer to purchase a specified amount of silver at a predetermined price and date. Futures trading can be complex and risky, and it’s typically more suitable for experienced investors or traders. If you want to trade silver futures, many brokerage firms and trading apps have the functionality to do so.

Silver certificates: Silver certificates are documents issued by financial institutions that represent ownership of a specific quantity of silver. They can be traded like stocks or bonds, providing investors with exposure to the silver market without the need to handle physical metal. However, silver certificates may carry counterparty risk depending on the issuer.

Digital silver: Digital Silver is a new way to buy 999.0 pure silver and store it for free in government-trusted vaults for precious metals. When you buy digital silver, you only have the option of selling your silver to the company that sold it to you. It, therefore, has less liquidity, unlike physical silver which can be sold to thousands of dealers globally.

Advantages of buying silver in different forms

ETFs: Provide convenience and high liquidity, making buying and selling easier compared to physical silver.

Futures: Allow for the potential of amplified returns through leverage, offering greater profit opportunities.

Silver mining companies: Offer diversification as their equity may not always correlate directly with silver prices, potentially providing additional investment opportunities.

Disadvantages of buying silver in different forms

ETFs: Expose investors to counterparty risk, and in the event of fund closure, may result in losses.

Futures: Pose the risk of significant losses, especially when using leverage, and may have higher complexity in terms of buying and selling.

Silver mining companies: Do not represent direct ownership of physical silver and carry unique business risks inherent in the mining industry.