Invest 5-10% In Silver Through SIPs For Portfolio Diversification

Swaroop Chand, email

I want to invest in silver exchange-traded funds (ETFs), but I am told I can make only systematic investment plans (SIPs) due to silver shortage. Can a fund house delay allotment or do they offer units on the same day? Is it a good time to invest in silver ETFs?

According to the Securities and Exchange Board of India (Sebi) guidelines, asset management companies (AMCs) are supposed to allot units on the day the funds are realised.

In the past few months, some AMCs stopped accepting lump sum investments and SIPs from new investors due to a shortage, which led to a sharp rise in price. This was done to temporarily halt new inflows until the demand–supply situation stabilised. Some AMCs continue to accept SIPs for existing investors, while many AMCs also offer daily SIP options.

Investment in silver ETFs can help diversify a portfolio, as silver has low correlation with equities. You may consider allocating 5-10 per cent through SIPs for long-term horizon and portfolio diversification. However, keep silver only as a small part of your overall portfolio.

Suhel Chander, CFP® Handholding Financials

Swami Iyer, email

I am planning to open a trading account to buy fractional US stocks, but I am unsure about taxes, conversion charges, and whether small investments would be worthwhile. Should I try this or stick to Indian stocks and ETFs?

For an Indian investing in US stocks, income is taxed in India based on the type of income (dividends or capital gains), holding period, and the India-US Double Taxation Avoidance Agreement (DTAA). Investments are subject to the Reserve Bank of India’s (RBI) Liberalised Remittance Scheme (LRS), with an annual limit of $250,000.

Dividends from US stocks are subject to 25 per cent withholding tax in the US. In India, the gross dividend is added to the total income and taxed according to the tax slab. Shares held for 24 months or less are taxed as short-term capital gains at slab rate and those held longer are taxed as long-term capital gains at 12.5 per cent plus surcharge (effective from July 23, 2024). A Foreign Tax Credit (FTC) can be claimed for the US tax already paid by filing Form 67.

Tax collected at source (TCS) of 20 per cent is applicable above Rs 10 lakh (effective April 1, 2025) and can be claimed by filing tax returns. Residents must file ITR-2 or ITR-3 and report all foreign assets in Schedule FA and foreign income in Schedule FSI. Gains and income must be converted to rupees using the SBI Telegraphic Transfer (TT) buying rate of the last day of the month of the transaction.

Beginners can start with Indian equities or ETFs and gradually explore US equities, even through mutual funds.

Hina Shah CFP® LUHEM²WEALTH

Sudhir Kapoor, email

My children will start college in 3-4 years. I have Rs 15 lakh saved and want higher returns, making sure money is available for tuition fees. Should I choose fixed deposits Fixed Deposits (FDs), recurring deposits (RDs), or short-term debt funds?

For capital safety and accessible money, a mix of FDs, RDs, and short-term debt funds is suitable.

FDs offer predictable returns, and prioritises principal. They can be liquidated prematurely, but usually at a penalty of 0.5-1 per cent of interest. Keep Rs 5 lakh per person, per bank, as this is the amount insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), for both principal and accrued interest. Choose top public sector or private banks, and avoid co-operative banks. Interest is taxable at the slab rate.

Debt funds kept for short duration, provide returns similar to FDs, but offer liquidity, and are redeemable in T+1 (trade+1) days, without penalty of premature withdrawal. These allow partial redemption while the rest of the units remain invested. Ensure the fund invests in good quality papers; and avoid corporate bond funds or credit-risk funds, as principal protection is the key. Gains on debt funds purchased after April 1, 2023, are taxed at the slab rate.

RDs are ideal for accumulating money, and their interest is also taxed at the slab rate. If you want higher returns and can handle volatility, invest a small part in hybrid funds through SIPs. They offer liquidity within T+2 days and their taxation depends on equity allocation.

Uma S Chander, CFP®, Handholding Financials