What approach should investors take in gold and silver ETFs after sharp rally?

Mutual funds offer an easy way to tap into gold and silver without owning them physically. From ETFs and fund-of-funds that track bullion to multi-asset allocation funds blending metals with equities and debt, here’s how you can invest, what to watch out for, and the tax rules that apply, as reported by ETBureau.

Investors can gain exposure to these metals via exchange traded funds (ETFs) or fund-of-funds (FoFs) offered by asset managers. When you invest, you receive units based on the scheme’s net asset value (NAV). These schemes hold physical gold bullion or silver, so the NAV moves in line with the metal’s price, giving you indirect ownership without holding the metal.

Investors can choose systematic investment plans (SIPs), systematic transfer plans (STPs), in addition to lump-sum investments. There is no upper limit on how much you can invest in these metals through mutual funds

Financial planners recommend a “buy on dips” strategy rather than lump-sum purchases. They advise against chasing past returns and suggest limiting exposure to 10–15% of your overall portfolio—around 10% in gold for portfolio protection during market stress or geopolitical risks, and 3–5% in silver as a tactical bet given its higher volatility. Build this allocation gradually over six months through SIPs, STPs, or staggered purchases during price corrections.

In addition to ETFs and FoFs, several fund houses offer multi-asset allocation funds that typically invest 10–25% in gold and silver. Multi-asset allocation funds give investors indirect exposure to gold and silver along with equities and debt, offering diversification and automatic rebalancing, and the allocations to precious metals are capped at 10-25%, limiting returns during sharp rallies in gold or silver.

For gold or silver ETFs, gains from units sold within 12 months are treated as short-term capital gains and taxed as per your income slab. Units held for more than 12 months attract long-term capital gains tax at 12.5%. For FoFs, holdings beyond 24 months are taxed at 12.5%, while those sold earlier are taxed according to your slab

In rupee terms, gold has returned 73% over the past year, while silver has gained 161%. Over three years, gold delivered an annualised return of 32.98%, and silver 48.77%.