Key Takeaways
- Five major fund houses have suspended fresh investments in silver ETFs due to severe physical silver shortage.
- Existing investors can continue SIPs, STPs, redemptions, and withdrawals normally.
- Silver prices have surged 80% domestically this year, with ETFs trading at 5-12% premiums.
- The suspension protects new investors from overpaying during current supply constraints.
Five major Indian mutual fund houses have temporarily suspended fresh investments into their silver exchange-traded fund (ETF) schemes amid an acute physical silver shortage. Tata Mutual Fund joined Axis Mutual Fund, Kotak AMC, UTI AMC, and SBI Mutual Fund in halting new inflows to protect investors from overpaying during this period of inflated prices.
Why Are Fund Houses Suspending Silver ETF Investments?
The primary reason is a severe physical silver shortage that has driven domestic prices up over 80% this year, crossing Rs 1.81 lakh per kg. Silver ETFs are trading at premiums of 5-12% above their net asset values (NAVs) due to supply constraints.
Tata Mutual Fund stated: “Supply constraints in physical silver are causing a surge in silver ETF prices as ETFs are backed by physical precious metal – silver ETFs are trading at a premium to their respective NAVs. Till this supply uncertainty reduces we have decided to temporarily suspend all fresh and additional lumpsum investments, switch-ins, and fresh SIP transactions.”
What Does This Mean for Investors?
Existing investors need not worry about their current holdings. All existing SIPs, STPs, redemptions, switch-outs, and systematic withdrawal plans (SWPs) will continue unaffected.
New investors cannot start fresh lumpsum investments, switch-ins, or register new SIPs/STPs until the suspensions are lifted. The measures are effective from October 14, with Tata MF processing requests received until 3 pm on October 13 as usual.
Understanding the Silver Shortage
The silver crisis stems from demand far outstripping supply, with muted mining output expected to continue until mid-2026. Several factors are driving this imbalance:
- Industrial demand: Solar photovoltaics, electric vehicles, electronics, 5G infrastructure, and semiconductors
- Investment demand: Global silver product inflows hit record levels in H1 2025, adding 95 million ounces
- Central bank buying: Major central banks have purchased 15 tonnes this year, including the Saudi Arabian central bank
- Festive demand: Domestic physical silver imports doubled in September despite record prices
Total silver ETF holdings have reached approximately 1.13 billion ounces (worth over $40 billion) by June 2025, according to Axis Mutual Fund.
Why Silver ETFs Trade at Premiums
The premium structure arises because domestic silver trades higher than international benchmarks due to supply constraints. When physical supply dries up, the creation process for ETF units stalls, causing them to trade at premiums. This premium cascades from physical silver through ETF NAVs to market prices, exposing new investors to overvaluation risk.
Fund houses are taking this protective measure to maintain scheme integrity and ensure fair treatment for all investors until the demand-supply scenario stabilizes.
