Rising Premiums on Silver ETFs Increase Investment Risk; Kotak Mutual Fund Urges Caution
The surge in Silver ETF prices has caught investors’ attention, but experts warn that growing premiums are also increasing the risk factor. Kotak Mutual Fund has advised investors to stay cautious as the Net Asset Value (NAV) of major Silver ETFs now trades at a significant premium.
Top Silver ETFs Jump 9–13% Despite Dip in Silver Prices
On October 9, leading Silver ETFs such as SBI Silver ETF, HDFC Silver ETF, and Axis Silver ETF rallied between 9% and 13%, even as silver futures on the MCX fell by 0.6%.
Apoorv Sheth, Head of Market Perspectives & Research at Samco Securities, noted that the strong investor demand is driving ETF NAVs higher — even when physical silver prices are softening.
Investor Demand Drives NAV Rally, Not Fundamentals
Experts say the recent uptrend in Silver ETFs is largely sentiment-driven rather than based on silver’s underlying fundamentals. On October 13, MCX Silver December futures jumped 4.21% to ₹1,52,629 per kg at 1:24 PM, reflecting heavy buying.
Fund managers are reportedly purchasing more physical silver to meet the rising demand in ETF investments, which in turn is influencing spot market prices.
Industrial Demand Keeps Silver Prices Elevated
Unlike gold, silver’s value is influenced not only by investment demand but also by industrial usage. The metal is widely used in electronics, solar panels, and other manufacturing sectors. With production rising across these industries, industrial demand has exceeded supply, further pushing prices upward.
Silver ETF Premiums Have Risen Tenfold Since September
Kotak Mutual Fund’s latest report highlighted that the average premium on Silver ETFs rose from 0.5% in early September to 5.7% by October 9. Currently, the buying premium stands around 10%, while the selling premium is near 3%.
Explaining the reason, Nilesh Shah, Director at Kotak Mutual Fund, told CNBC-TV18 that India’s silver prices are derived from global prices, converted into rupees, and adjusted for import duties and GST.
Import Duties and Supply Shortage Fuel Premiums
For example, if the global silver price is $50 per unit and the exchange rate is ₹90 per dollar, the base price in India becomes ₹4,500. After adding import duty and GST, the price climbs to about ₹5,000 per unit. However, due to domestic supply shortages, physical silver in India is trading near ₹5,500 per unit.
This gap is why investors are effectively paying a 10% premium when investing in Silver ETFs or Silver Fund of Funds.
Kotak Temporarily Halts New Subscriptions
Given the inflated premiums and limited supply, Kotak Mutual Fund has temporarily suspended lump-sum and switch-in subscriptions for its Kotak Silver ETF Fund of Fund, advising investors to wait for market normalization.
