Definition
Commodity ETF
A commodity ETF provides exposure to physical commodities or commodity prices, such as gold and silver in India, through an exchange-traded structure rather than direct purchase of the physical asset.
In the Indian market, commodity ETFs are currently dominated by gold and silver funds holding the physical metal. They give investors a regulated, liquid, demat-form route to commodity exposure, avoiding the storage, purity and authenticity issues of buying the metal directly.
Unlike futures-based commodity ETFs common abroad, Indian metal ETFs are backed by allocated physical inventory, which avoids the roll-yield and contango drag that erodes futures-based products. The structure relies on the standard creation/redemption mechanism, usually settled in cash, to keep prices aligned with domestic spot.
Related terms
- ETF Creation/RedemptionCreation and redemption is the primary-market mechanism by which authorised participants exchange a basket of underlying securities (or cash) for new ETF units, or hand back units for the basket, keeping the ETF price aligned with its NAV.
- Fund of Funds ETFA fund of funds (FoF) is a mutual fund scheme that invests in units of other funds or ETFs rather than directly in securities, often used in India to give domestic investors access to ETFs without a demat account.
- Silver ETFA silver ETF is an exchange-traded fund that holds physical silver and tracks domestic silver prices, allowing investors to take silver exposure in dematerialised, exchange-traded form.
- Gold ETFA Gold ETF is an exchange-traded fund that tracks the price of physical gold, letting investors buy and sell gold exposure on the stock exchange in demat form.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.