Commodity ETFs: Diversify with Gold, Silver, and More

Introduction

In the search for diversification and inflation protection, Commodity ETFs are gaining popularity among Indian investors. These exchange traded funds offer exposure to commodities like gold, silver, oil, and other natural resources—without the complexities of physical storage or futures trading. In this guide, we’ll explain what commodity ETFs are, how they work, and how they can be used to diversify an Indian investment portfolio.

What is a Commodity ETF?

A Commodity ETF (Exchange Traded Fund) is a fund that tracks the price of a specific commodity or a basket of commodities. These ETFs trade on stock exchanges like shares and offer investors access to the performance of underlying commodities without holding them physically.

Examples of underlying assets:

• Precious metals: Gold, Silver
• Energy: Crude Oil, Natural Gas
• Agricultural: Wheat, Corn
• Industrial metals: Copper, Aluminum

Types of Commodity ETFs

1. Physically Backed ETFs

• Hold actual physical commodities (e.g., Gold ETFs in India)

2. Futures-Based ETFs

• Invest in commodity futures contracts (common globally for oil or agricultural ETFs)

3. Commodity Equity ETFs

• Invest in stocks of commodity-producing companies (e.g., mining or energy firms)
   

Commodity ETFs in India 

In India, commodity ETFs are relatively new and mostly focused on gold, with limited options for other commodities.

SEBI has recently allowed Silver ETFs, broadening investor choices.

Note: Other commodity ETFs (e.g., oil, agriculture) are available through international investing platforms. (You are recommended to seek advice from financial advisor before you take any/refrain from any action)

Benefits of Investing in Commodity ETFs

1. Portfolio Diversification: Helps reduce risk by adding uncorrelated asset classes
2. Hedge Against Inflation: Commodities often rise in value during inflationary periods
3. No Physical Handling: Eliminates storage and security concerns
4. Liquidity: Traded on exchanges with real-time pricing
5. Transparency and Regulation: SEBI-regulated structure ensures investor safety

Are Commodity ETFs Low Cost?

• Gold ETFs in India typically have lower expense ratios compared to physical gold investments
• However, compared to equity ETFs, they may have slightly higher tracking errors due to pricing and storage costs (You are recommended to seek advice from financial advisor before you take any/refrain from any action)

Do Commodity ETFs Pay Dividends?

Most commodity ETFs do not pay dividends because they don’t generate income. Their returns are based solely on price appreciation of the underlying commodity.

How to Invest in Commodity ETFs in India

1. Open a demat and trading account with a registered broker
2. Search for available commodity ETFs (e.g., gold, silver)
3. Place a buy order during market hours
4. Monitor performance through your trading app or exchange website

Conclusion

Commodity ETFs offer Indian investors a smart, efficient way to gain exposure to natural resources like gold and silver. While the market in India is still evolving, these ETFs can play a strategic role in portfolio diversification and inflation protection. As more options emerge, commodity ETFs will likely become a core holding in many Indian portfolios.

Additional links:

What is a Mutual Fund? - Beginner's Guide to Investing

Systematic Investment Plan

What is an Exchange Traded Fund (ETF)

Why should you invest in an ETF?

What are Mutual Funds?

Gold ETF