'Better wait than overpay': Nilesh Shah explains why Kotak AMC froze its silver fund despite rally

As silver prices surge and investor demand heats up, one of India’s top fund houses just hit pause.

But not because silver is cooling off—quite the opposite. Kotak Mutual Fund has temporarily frozen fresh investments in its Silver ETF Fund of Fund, warning that buyers are walking straight into a premium-fueled trap.

“This isn’t the time to chase silver at any price,” Nilesh Shah, Managing Director of Kotak Mahindra Asset Management, told Business Standard in an interview. “We’ve suspended lump sum and switch-in transactions purely to protect investors.”

At the heart of the freeze is a growing distortion in silver pricing. Globally, silver trades around $50 per ounce.

Converted into rupees and adjusted for import duty and GST, the fair price lands at about ₹5,000 per ounce. But in India’s physical market, jewellers and bullion dealers are quoting close to ₹5,500—a premium of 10% to 12%.

“This kind of spread is abnormal,” Shah said. “Normally, the difference is 0.5%. Right now, it’s ten times that. That’s why we acted.”

Kotak’s Silver ETF Fund of Fund invests in silver ETFs that mirror these inflated physical prices. As a result, investors entering the fund now would be buying silver at unsustainable levels.

“We don’t have the option of using futures. So unless we paused, investors would be exposed to significant overvaluation,” Shah explained. Existing SIPs and STPs will continue as is, but new inflows are on hold.

He sees the silver spike as partly driven by short-term supply disruptions, festive demand, and investor speculation. But it also reflects a deeper trend: a flight to hard assets, triggered when Russia’s forex reserves were frozen in 2022. Since then, central banks globally have been buying nearly 1,000 tons of gold annually—and silver, the “poor man’s gold,” is following closely behind.

So what should investors do?

Shah urges restraint. “We’re bullish on silver, but that doesn’t mean you buy blindly. Keep exposure to gold and silver at around 10–12% of your portfolio. The rest should be in equities, which are showing signs of recovery.”

His bottom line: “When the silver premium cools off, we’ll reopen. But until then, better to wait than overpay.”