The sharp rise in silver prices – almost 100% since January – has led to an acute scarcity in the Indian market, and pushed the prices higher than the global benchmark. As a result, six fund houses have taken a call to halt fresh investments, including lumpsum, switch-in transactions and fresh registration systematic investment plans/systematic transfer plans into their silver exchange-traded fund (ETF) fund of funds (FoFs).
On Tuesday, ICICI Prudential AMC joined Axis Mutual Fund, Kotak Mutual Fund, UTI Mutual Fund, Tata Mutual Fund, and SBI Mutual Fund in discontinuing new investments into their silver ETF FoFs. However, all existing SIP and STP registered shall remain operational.
“Supply constraints in physical silver are causing a surge in silver ETF prices as ETFs are backed by physical precious metal — that is, silver ETFs are trading at a premium to their respective iNAVs. Till this supply uncertainty reduces … we have decided to temporarily suspend all fresh and additional lumpsum investments, switch-ins, and fresh SIP transactions in Tata Silver ETF FoF,” explained Tata MF’s statement.
On Tuesday, international silver prices fell from an all-time high of $52.37 per ounce on Monday to $ 51.21. In India, silver prices at Rs 1,77,794/kg – an all-time high. In the past month, it has risen 33.49% leading to high investor interest in these products.
Abhilash Koikkara, head of forex and commodities at Nuvama Professional Clients Group, attributed the suspension of lumpsum investments to the premium at which they are trading to the spot market prices and lack of supply in the physical market. According to him, once the festive demand is out of the way, the disparity should get self-corrected to some extent.
Kotak Mutual Fund had also said in its press release that it anticipates that the shortage in domestic silver supply may persist through the end of October 2025. As of October 9, the premium between international landed prices (USD spot price after currency conversion + applicable levies) and domestic silver prices was 5.70%.
Recently, Venkat N Chalasani, chief executive of the Association of Mutual Funds in India had said in the monthly call that this is a global phenomenon, non-availability of silver is resulting in extreme premium but individual asset management companies have their own risk-management policies and basis that they will be taking action.
Despite this, experts advise continuing SIPs in these products. Koikkara is structurally bullish on silver prices and expects it to outperform gold, given the supply shortage and its use in solar panel and EV industry. “There could be a momentary correction can be expected and SIPs should be preferred as the volatility will remain high.”
Hemen Bhatia, CEO of Angel One AMC cautioned against tactical trading as silver is more volatile than equities.