About silver investment in India

Although the white metal is predominant in Indian subcontinent, there are a few factors to take into consideration before making a silver purchase. Simple precautions you take can help you avoid these drawbacks and maximise on your investment. Some of the tips to follow before purchasing silver are mentioned below.

Rules for silver investment

• Objective behind making the purchase

Before you choose to invest your hard-earned money in silver, you must ask yourself why you are making the purchase. Is it for investment purposes to generate long-term capital or is it purely for ornamental usage? The type of silver you buy would be determined by the answer to this question. A brief explanation of the two is mentioned below.

Ornaments

If you are purchasing silver simply for ornamental usage, there are more than enough outlets to choose from. You will also be able to find ornaments coupled with other rare metals and precious stones. However, you would be paying a premium price due to the making and wastage charges that retail outlets levy.

During resale, you will be unable to recover these costs. Therefore, jewelry will not be an apt investment for generating long term revenue.

That being said, it doesn’t mean that you can’t profit from these purchases. It is likely that the price of silver increases in future and you would make a profit on resale. However, the profit margin would be much lesser in comparison to silver bars or coins which are specifically designed for long-term investments.

Investment

On the contrary, if you are looking to invest in the precious metal, it is advisable to invest in silver bars and silver coins. Not only are they designed for investments, but they are also easy to store and do not bear any making or wastage charges.

Apart from silver bars and coins, another way to invest in silver is by putting your money into silver-based Exchange Traded Funds (ETF).

These are basically mutual funds in the valuation of silver traded in the stock market. Here, you are investing in intangible silver, and similar to mutual funds ETFs also pool in money to buy a defined underlying asset, in this instance, silver.

Most renowned banks in the country provide ETFs and are all practically priced the same. The pros of purchasing ETFs are that there is no making and wastage charge upon purchase.

Furthermore, you don’t need to burden yourself with storing it as they are not physical products. However, you will have to pay a brokerage charge for every transaction made. Typically, the brokerage charge is only 1% – 2% of the total transaction amount.

• Ensure that the silver has the BIS hallmark stamp

The BIS hallmark stamp is an indicator that the silver you put your hard-earned money into is pure and authentic. India has over 13,500 showrooms that are authenticated by this stamp, and over 400 BIS recognized assaying centers. Despite this, there are still several outlets that do not have the authentication stamp but still sell the metal.

Only 30% of the total silver jewelry in the country is hallmarked, out of which 80% are items of high value.

Therefore, it is absolutely imperative to ensure that you pick up silver from authenticated stores and dealers. Something of even greater importance is ensuring that the silver item you purchased has the BIS hallmark symbol. The entire list of jewelers that are registered is mentioned on the BIS website. You can also contact the BIS for any concerns and queries.

Although BIS is a benchmark for authentic silver, a large volume of the yellow metal is being sold without the stamp in rural areas. This contributes to over 60% of the yearly silver jewelry consumed in India. Therefore, even if silver may be slightly cheaper in a small town or village, you must be wary before making a purchase.

• Inspect the price of silver per gram

Although most jewelers sell you the metal at the same price, there may be a case where a jeweler prices it differently. Therefore, it is important to understand what the metal is trading on that day before making the purchase. You can check these prices by visiting several showrooms, or you could simply visit websites online that tell you the silver price per gram.

• Inspect the amount of you are purchasing

If you are purchasing silver jewelry, ensure you check the weight of the metal as you will be charged for wastage and making charges. These charges are not overlooked by an organization and are at the discretion of the vendor. Some vendors charge a higher making and wastage charge than others. Ensure you have a rough idea of what the industry charges for making and wastage.

The figure of the weight of silver you wish to purchase and evaluate its cost by multiplying the price of the metal per gram to the total weight of the silver. Now subtract the total amount charged by the dealer from this amount mentioned previously. This is how you calculate the total wastage and making charges.

For instance, if the cost of silver is Rs.3,000 per gram and you have purchased a jewelry item that weighs 10 grams, the total cost of the metal as per the rate of silver is Rs.30,000. However, the jeweler would charge you, let’s just say, Rs.35,000. Therefore, the making and wastage charge for the jewelry is Rs.35,000 – Rs.30,000, which is Rs.5,000. If this seems like a fair deal to you after you have done your research with other vendors, go ahead with the deal. But ensure to do your research to avoid unfair pricing.

• Go through the buy-back terms

It is a good idea to enquire about the terms of buy-back. What is the jeweler willing to offer you in case you wish to return the silver at a future date? As designs go out of fashion, it is a good idea to enquire about this in case you wish to exchange this piece of metal for a more modern design.

Many vendors promise to buyback the jewelry at prevailing rates should you choose to exchange it later. This doesn’t mean you will be able to recover the wastage and making charges, but it means that you have an assurance from the vendor that you can sell the piece back to the vendor at prevailing silver rates.

It is also important to check if the exchange and buy-back period have hidden terms and conditions. Make sure to fully comprehend the policy before making the purchase. Also, enquire if there is a system in place where you can express your grievances and complaints.

Obtain the invoice

Ensure that you receive the invoice for the purchase for future references and a breakdown of the amount spent. You must also understand that you will have to pay VAT and if the purchase is over Rs.50,000, you’ll have to produce your PAN details to the vendor. A bill also ensures the transparency of the transaction.

Purchasing silver in India can be difficult as there are several vendors to choose from and it is easy to be fooled into overpaying for the precious metal. However, following the tips mentioned in this article can help avoid many of the pitfalls that the silver industry poses on customers.