Gold and silver can add a different kind of exposure to your investment portfolio, but buying physical metal brings questions about storage, purity and resale. Commodity ETFs offer another route. These exchange traded funds let you invest in commodities through units bought and sold on a stock exchange.
For investors in India, gold ETFs and silver ETFs are the main examples. This guide explains what commodity ETFs are, how they work, their benefits and risks, and what to compare before investing.
Table of Contents
What are commodity ETFs?
Commodity exchange traded funds, or commodity ETFs, are funds whose units trade on a stock exchange and whose value is linked to a commodity or commodity related asset. You buy units of the fund instead of personally buying and storing the commodity.
In India, gold ETFs and silver ETFs are the most familiar examples. A gold ETF aims to track domestic gold prices, while a silver ETF aims to track domestic silver prices. You can check a fund’s scheme documents to see exactly what it is permitted to hold. Owning its units does not mean you can take home the metal held by the fund.
Source: SEBI, “Norms for Silver Exchange Traded Funds (Silver ETFs) and Gold Exchange Traded Funds (Gold ETFs),” 24 November 2021.
Key Takeaways
- Commodity ETFs are exchange traded funds that give investors exposure to a commodity or a commodity related asset.
- Gold and silver ETFs are the main commodity ETF categories available on Indian stock exchanges.
- A gold or silver ETF aims to track its underlying metal, but expenses and tracking difference affect the return investors receive.
- An ETF’s trading price can be higher or lower than its net asset value (NAV).
- Before investing, compare the underlying asset, fund costs, tracking and trading activity.
What types of commodity ETFs are there?
The term commodity ETF covers several approaches globally. The distinction for an investor looking at funds in India is:
| Type | What it provides exposure to | What to know |
| Gold ETF | Gold and permitted gold related assets | Available on Indian stock exchanges |
| Silver ETF | Silver and permitted silver related assets | Available on Indian stock exchanges |
| Futures based commodity ETF | Contracts linked to commodities such as oil or agricultural products | Discussed in global ETF markets; do not assume a particular product is available as a domestic ETF |
A fund that invests in shares of mining, metal or energy companies is different from an ETF tracking a metal’s price. The companies’ earnings and share prices also influence its returns. Even if an equity index has commodities in its name, an ETF tracking that index holds shares rather than physical commodities.
For more on individual metals, read Bajaj AMC’s precious metals ETF guide.
How do commodity ETFs work?
A gold or silver ETF pools investors’ money and invests according to its scheme mandate. The value of its holdings, after accounting for expenses and liabilities, is used to calculate the NAV per unit. The units also trade on an exchange, where buyers and sellers determine the price you pay or receive.
NAV and trading price can therefore differ. The trading price may be above NAV, called a premium, or below it, called a discount. Expenses and tracking difference can also mean that the return on your ETF units differs from the change in the underlying metal’s price. SEBI’s ETF explainer describes exchange trading, while its tracking error guide explains how closely a fund follows its benchmark.
Since 1 April 2026, mutual funds have used polled spot prices published by recognised stock exchanges to value physical gold and silver held by their schemes, in line with SEBI’s revised rule.
Source: SEBI, “Valuation of physical Gold and Silver held by mutual fund schemes,” 26 February 2026.
What are the benefits of commodity ETFs?
Commodity ETFs can offer a convenient way to add gold or silver to a portfolio:
- No personal storage: You do not have to keep the metal at home or arrange a locker for it.
- Exchange access: You can place buy and sell orders during market hours, subject to available buyers and sellers.
- Another type of investment exposure: Gold or silver can add an asset beyond shares and bonds to your portfolio.
- Information you can review: Scheme documents, NAVs and cost disclosures help you understand and compare funds.
These are practical features, not a promise of returns. Gold and silver prices can rise or fall, and their relationship with other investments can change.
What risks should you consider?
The main risks to understand before buying a commodity ETF are:
- Commodity price risk: If the underlying metal’s price falls, the value of the ETF can fall too.
- Tracking difference: Expenses and other factors can cause the fund’s return to differ from the metal’s price movement.
- Premiums and discounts: Buying above NAV or selling below NAV can affect your return.
- Trading liquidity: A lightly traded ETF may have a wider gap between its quoted buying and selling prices.
- Single commodity exposure: A gold ETF gives you gold exposure; it does not spread your investment across several commodities.
How are commodity ETFs taxed in India?
For listed gold and silver ETFs, gains on units held for up to 12 months are generally short term capital gains and taxed at the investor’s applicable income tax rate. Gains on units held for more than 12 months are generally long term capital gains and taxed at 12.5% without indexation, plus applicable surcharge and cess.
The ₹1.25 lakh annual long term capital gains threshold under Section 112A applies to qualifying equity investments, not to gold or silver ETFs. Do not assume the same holding period applies to a gold or silver fund of funds: it is a separate scheme and its tax treatment should be checked separately. The Income Tax Department’s capital gains guidance and Section 50AA set out the relevant framework.
The tax information in this article is based on prevailing laws at the time of publishing the article and is subject to change. Please consult a tax professional or refer to the latest regulations for up-to-date information.
How to choose a commodity ETF
Once you have decided which commodity you want exposure to, compare funds tracking that same commodity. Check:
- Investment objective: What does the scheme aim to track, and what may it hold?
- Expense ratio: What does the fund charge to manage your investment?
- Tracking: How closely has it followed its underlying asset?
- Trading activity: Are units traded regularly, and how far apart are the quoted buying and selling prices?
- Trading price and NAV: Are you buying at a noticeable premium or selling at a noticeable discount?
A gold ETF and a silver ETF track different metals, so their recent returns alone do not show which fund has done a better job of tracking its own asset.
Past performance may or may not be sustained in future
How to invest in commodity ETFs in India
To buy a listed gold or silver ETF, you generally need a trading and demat account and must complete the required KYC. Search for the ETF on your trading platform, read its scheme details, check the quoted price and place an order for the number of units you want.
You can sell your units through the trading platform during market hours, subject to market conditions and available buyers. Check your broker’s applicable charges as well as the fund’s expense ratio. SEBI notes that brokerage and demat charges may apply to ETF transactions.
Conclusion
Commodity ETFs make it possible to invest in gold or silver without personally buying and storing the metal. In India, gold ETFs and silver ETFs are the main choices. Their units trade on a stock exchange, while the value of the fund is linked to its underlying metal.
Before choosing a commodity ETF, look beyond recent returns. Check what the fund holds, its expenses and tracking, and whether its trading price is close to its NAV. Then consider how that gold or silver exposure fits with the rest of your investments.
FAQs
Are commodity ETFs safe?
Commodity ETFs are regulated funds, but their returns are not guaranteed. A gold or silver ETF can lose value when the metal’s price falls. Fund costs, tracking and the price at which you buy or sell can also affect your return.
What is the difference between a commodity ETF and a stock?
A gold or silver ETF gives you units of a fund that aims to track a metal. A stock gives you ownership in a company, whose share price is influenced by its business performance and market conditions.
Is it better to invest in a gold ETF or a silver ETF?
Neither is better for everyone. Gold and silver respond to different forces and can move differently over the same period. Choose according to the exposure you want, the investments you already hold and the risks you are comfortable taking.
Can I invest in commodity ETFs without a demat account?
Buying a listed commodity ETF through an exchange generally requires a demat account. A gold or silver fund of funds may provide a route without one, but it is a separate mutual fund scheme with its own costs and tax treatment.
Can I invest in commodity ETFs through an SIP?
An ETF does not automatically offer a conventional mutual fund SIP. Some trading platforms may support scheduled ETF purchases. A gold or silver fund of funds may also offer an SIP facility, so check the specific scheme and platform before investing.
Do commodity ETFs pay interest or dividends?
Gold and silver do not themselves pay interest or dividends. An investor’s return from a gold or silver ETF mainly depends on changes in the value of its units after costs.
Why might I pay more than NAV for a commodity ETF?
An ETF’s trading price is set by orders on the exchange, so it can rise above NAV when buyers are willing to pay more than the fund’s value per unit. Check the trading price against the available NAV information before placing an order.Top of FormBottom of Form
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