Gold vs Silver ETFs before Diwali 2026: Which delivered better returns? What risks should investors check before buying?

With Diwali approaching, investors looking to add precious metals to their portfolios face a choice between gold and silver exchange-traded funds (ETFs). While both offer exposure to precious metals without the need to purchase or store physical bullion, their returns and risk profiles differ considerably.

Value Research data shows that silver ETFs delivered an average return of 25.04% over one year, compared with 15.79% for gold ETFs. Over three years, silver ETFs generated average returns of 35.96%, against 30.58% for gold ETFs.

However, the recent performance paints a different picture. Over three months, gold ETFs declined 3.86%, while silver ETFs fell 17.04%. This highlights the sharper price fluctuations investors may have to contend with when investing in silver.

Gold vs silver ETFs: Which delivered better returns?

The performance difference reflects the distinct demand drivers of the two precious metals. While silver has benefited from its industrial demand and investment interest, gold has traditionally attracted investors seeking a safe-haven asset.

The three-month performance data also highlights the difference in their downside risks. Silver ETFs have corrected more sharply than gold ETFs, making it important for investors to consider their risk appetite rather than choosing a fund solely based on historical returns.

Among individual schemes, Tata Silver ETF delivered the highest one-year return in the silver category at 20.51%, followed by SBI Silver ETF at 20.36%. In the gold category, Aditya Birla Sun Life Gold ETF topped the list with a one-year return of 12.93%, followed by Quantum Gold ETF at 12.89%.

Why do gold and silver ETFs perform differently?

Gold and silver have different demand drivers, which explains why their prices do not always move in tandem.

Gold derives much of its value from safe-haven demand, central bank purchases and investment demand. Silver, meanwhile, has a significant industrial component to its demand, with applications across sectors such as electronics, solar energy and manufacturing.

Rahul Khetawat, senior vice-president and fund manager at 360 ONE Asset, said the two metals are fundamentally different commodities despite both belonging to the precious metals category.

"Gold derives its value largely from safe-haven demand, central bank buying and investment demand. Silver, by contrast, is driven more by industrial consumption than by investment demand," he said.

Khetawat said the global economy faces several headwinds, including trade tensions, the conflict in the Middle East, tight liquidity conditions and El Niño. In such an environment, gold tends to be better supported.

"We believe that gold is better positioned than silver right now, and we remain more positive on gold," he added.

What risks should investors check before buying gold and silver ETFs?

Silver's higher historical returns come with a significant trade-off: greater volatility.

Khetawat described silver as a "high-beta play on gold", pointing out that its industrial demand makes it vulnerable to deeper price corrections. He also noted that silver has historically been more volatile than gold, with its recent correction of almost 50% from its high reinforcing this risk.

"Investors should size silver exposure prudently within their overall asset allocation, and keep a longer investment horizon," he said.

Apart from the underlying metal's price movements, investors should examine five factors before selecting an ETF.

Expense ratio: Compare the annual fees charged by different fund houses, as higher expenses can reduce returns over time.

Tracking error: Check how closely the ETF follows the price of its underlying metal. A higher tracking error indicates a greater deviation from its benchmark.

Liquidity and trading volumes: Low trading volumes can make it difficult to buy or sell units at the desired price.

Bid-ask spread: A wider difference between buying and selling prices can increase transaction costs.

Indicative NAV (iNAV): Compare the ETF's market price with its indicative net asset value before placing an order to avoid paying a significant premium.

Khetawat said both gold and silver ETFs are reasonably liquid and trade on Indian exchanges. However, investors should compare expense ratios, tracking errors and trading volumes across schemes and check the iNAV before placing orders.

Should investors buy gold or silver ETFs before Diwali?

Investors should avoid choosing between the two metals solely on the basis of recent returns.

Gold may be more suitable for investors seeking safe-haven exposure and relatively lower volatility within the precious metals category. Silver may appeal to those willing to accept sharper price fluctuations and take exposure to industrial demand.

For investors looking to build exposure to either metal, Khetawat recommends considering a systematic investment plan (SIP) rather than attempting to predict short-term price movements.

"Short-term price movements are difficult to predict, so investors should avoid trying to time the market and instead build exposure steadily over time, aligned with their asset allocation and investment horizon," he said.

Ultimately, the choice between gold and silver ETFs should depend on an investor's risk appetite, investment horizon and existing portfolio allocation, rather than past returns alone.