The year 2025 has been remarkable for precious metals. Gold has surged around 60% since January, while silver has skyrocketed about 80%. For Indian retail investors, this rally has created a unique opportunity through Gold and Silver Fund of Funds (FoFs). Introduced only a few years ago in 2022, these funds enable small investors to participate in both markets with as little as ₹100, eliminating the hassles of storage, purity checks, and complex allocation decisions.
No more visiting jewelers or worrying about bank lockers. Today, investing in gold and silver is as simple as using a smartphone. FoFs combine gold’s stability with silver’s industrial growth potential, all managed by professionals who adjust allocations based on market conditions.
Understanding Gold and Silver Fund of Funds
Structure and Investment Approach
Gold and Silver FoFs are mutual fund schemes that invest in Gold ETFs and Silver ETFs, rather than physical bullion. This setup gives investors indirect access to professionally managed ETFs that hold gold and silver in secure, audited vaults.
The main advantage is dual-metal exposure, with portfolios typically maintaining 35%–65% in each metal, adjusted based on market conditions.
Currently, the Indian market has four notable players:
Dynamic vs. Fixed Allocation
Dynamic allocation lets fund managers adjust the gold-silver ratio based on market trends, industrial demand, macroeconomic data, and the gold-silver ratio (currently ~83:1, historically around 60:1).
Fixed allocation keeps a predetermined split (often 50:50) and rebalances systematically. This method buys undervalued metals and sells overperforming ones, capturing gains without relying on market timing.
Why Hold Both Gold and Silver?
Complementary Roles
Gold and silver serve different purposes:
- Gold is a defensive asset, protecting wealth during economic uncertainty, inflation, or geopolitical crises. Central banks continue to buy over 1,000 tonnes annually.
- Silver is industrial, with about half of its demand coming from solar panels, EVs, electronics, and 5G infrastructure. Its value grows with economic expansion and industrial activity.
The 2025 rally shows this clearly: gold rose on safe-haven demand, while silver benefited from industrial supply shortages and growing technology-driven demand.
Behavioral Advantages
Short-term price movements are unpredictable. Retail investors often make emotional mistakes, buying high or selling low. FoFs remove this burden by letting professional managers make informed allocation decisions using research, data, and models.
Drivers Behind the 2025 Rally
Central Bank Purchases
Since 2022, global central banks have become net buyers of gold, diversifying away from dollar reserves. China and India are major accumulators, with other countries following suit, creating structural demand that supports higher prices.
Monetary Policy and Currency Effects
Lower interest rates reduce the opportunity cost of holding gold. Negative real yields and a weaker US dollar make gold more attractive, boosting its global demand.
Industrial Demand and Supply Limits
Silver’s industrial use drives strong demand, especially in solar PV and EV production. Mining production has not kept pace, creating a structural deficit. In October 2025, some Silver ETF FoFs paused lump-sum investments due to shortages, trading at premiums above NAV.
Tax and Regulatory Notes
According to the Finance Act 2024:
- Short-term gains (<24 months): taxed at 20%.
- Long-term gains (>24 months): taxed at 12.5%, without indexation.
SEBI classifies all Gold and Silver FoFs as “Very High Risk” due to volatility. Expense ratios range from 0.14% to 0.52%.
Strategic Investment Approach
Advisors recommend precious metals make up 5–10% of total portfolios—a diversification tool rather than the primary growth driver. Systematic Investment Plans (SIPs) over 12–24 months are preferred to avoid timing risks. Minimum investment horizons of five years are ideal, aligning with tax-efficient long-term treatment.
Performance Snapshot
Edelweiss FoF delivered 74% one-year returns and 38% annualized three-year returns; Motilal Oswal FoF returned 61% one-year and 35% three-year returns. These results reflect extraordinary market timing; realistic long-term gains typically align with inflation plus 1–3% real growth.
Conclusion
Gold and Silver FoFs open precious metals investing to millions of Indians previously excluded due to high costs or logistical hurdles. They combine affordability, security, professional management, and dynamic exposure to both metals.
These funds are suitable for investors who:
- Can tolerate high volatility
- Have a long-term
- Horizon (5+ years)
- Prefer delegating allocation decisions to professionals
They may not be ideal for those seeking maximum cost efficiency, stable income, or hands-on control.
The mechanics of Gold and Silver FoFs—professional allocation, tax efficiency, and accessibility—appeal to many retail investors.
However, the “Very High Risk” classification deserves serious consideration. Silver particularly exhibits extreme price behavior, with 20%+ movements materializing within weeks. Prospective investors should carefully assess whether this volatility aligns with their financial goals and psychological comfort before committing capital.
P.S. This content is for educational and informational purposes only and does not constitute investment advice or a solicitation to buy or sell any securities. Readers should consult qualified financial professionals to evaluate investments based on their individual financial needs and risk tolerance.
FAQs
A Gold and Silver Fund of Funds (FoF) is a mutual fund that invests in Gold ETFs and Silver ETFs instead of physical metals. These ETFs hold pure gold (99.5%) and silver (99.9%) stored securely in audited vaults. FoFs provide investors with exposure to precious metals without dealing with storage, purity, or security concerns. They offer transparent NAV-based pricing and easy buy/sell access through investment platforms.
The minimum investment can be as low as ₹100 in some schemes, making these FoFs highly accessible for retail investors. You can start with SIPs of ₹500–₹2,000 monthly to gradually build your position. This approach uses rupee-cost averaging, helping lower the average cost over time compared to lump-sum investing. In contrast, physical gold or silver requires high minimum purchases—around ₹1.3 lakh for 10g gold and ₹1.7 lakh for 1kg silver.
These FoFs are structurally safe since underlying gold and silver are stored in secure, audited vaults. However, SEBI classifies them as “Very High Risk” due to price volatility, not safety concerns. Silver especially experiences sharp price swings (20%+ moves possible). Key risks include price volatility, supply shortages, interest rate sensitivity, and currency movements. They are suitable for investors with a 5+ year horizon and high risk tolerance.
As per the Finance Act 2024 (effective July 23, 2024), Short-Term Capital Gains (≤24 months): Taxed at a flat 20%, with no indexation benefit.Long-Term Capital Gains (>24 months): Taxed at a flat 12.5%, also without indexation. Compared to direct ETFs (12-month LTCG threshold), FoFs have a longer 24-month holding period, making them slightly less tax-efficient. However, FoFs allow internal rebalancing between gold and silver without triggering taxes—an advantage over holding separate ETFs.
Fixed Allocation maintains a preset split (usually 50:50) between gold and silver. Automatically rebalances when one metal outperforms, ensuring disciplined “buy low, sell high” adjustments. Example: Edelweiss Gold and Silver ETF FoF. Best for investors seeking simplicity and rule-based investing.Dynamic Allocation: Fund managers actively adjust the gold-silver ratio based on market trends, macro conditions, or the gold-silver factors. Example: Motilal Oswal (70:30) and Mirae Asset (45:55). Offers potential for tactical outperformance but depends on manager skill and timing accuracy.
The information provided in this reference is for educational purposes only and should not be considered investment advice or a recommendation. As an SEBI-registered organization, our objective is to provide general knowledge and understanding of investment concepts.
It is recommended that you conduct your own research and analysis before making any investment decisions. We believe that investment decisions should be based on personal conviction and not borrowed from external sources. Therefore, we do not assume any liability or responsibility for investment decisions made based on the information provided in this reference.
