Silver shock: Kotak, SBI, UTI pause silver ETF FoF inflows — here’s why experts urge investor caution

In a major development for precious metal investors, leading mutual fund houses — Kotak Mahindra Mutual Fund, SBI Mutual Fund, and UTI Mutual Fund — have temporarily suspended lump-sum investments in their Silver ETF Funds of Funds (FoFs). The move comes amid an unprecedented spike in domestic silver prices, which are trading 10–12% higher than international import parity rates, compared with a normal premium of just 0.5%.

The fund houses cited a temporary scarcity of physical silver in India and sharp investor inflows as reasons behind this divergence. “Due to this shortage and a sharp surge in investor demand, the domestic price of silver is trading at an abnormally high premium compared with international import parity prices,” analysts noted. The decision aims to protect retail investors from buying silver at inflated prices, which could quickly correct once the market stabilises.

Why the suspension matters

Silver ETFs allow investors to gain exposure to silver’s price movements without physically holding the metal. However, during times of inflated spot prices, fund managers are compelled to buy silver at elevated rates, which could lead to immediate mark-to-market losses if prices normalise.

While Silver ETF FoFs have been restricted, Silver ETFs themselves continue trading on stock exchanges, as those units are exchanged between investors directly. Fund houses clarified that they cannot control secondary market prices, which depend on investor sentiment and trading dynamics.

Operationally, the physical shortage has made it difficult for fund managers to create new ETF units at fair prices, forcing them to suspend new inflows to avoid disadvantaging investors entering at distorted valuations.

Silver’s surge and the risk for investors

Silver has gained nearly 79% over the past year and about 49% in the last three months, fuelled by global economic uncertainty, industrial demand, and expectations of US Federal Reserve rate cuts. Analysts, however, warn that such a sharp rally warrants caution.

“Silver may outperform gold in the medium term with a favourable gold-silver ratio, recovery in developed economies, strong industrial demand especially from China, and global supply deficit projections,” said Tata Mutual Fund in its October 2025 Silver Outlook report. The fund house believes the current supply deficit and monetary easing will continue to support silver prices over the next three to five years, but also cautioned that “short-term volatility and macro headwinds remain key risks.”

Kotak, Tata maintain bullish long-term outlook

While suspending lump-sum entries, Kotak Mutual Fund reiterated its constructive stance on silver. “The selling premium remains modest at approximately 3%, and we continue to maintain a constructive outlook on silver from a long-term investment perspective,” the fund house stated. “This measure is purely aimed at protecting investors from entering at inflated domestic premiums.”

Expert view: Don’t chase the rally

Financial planners continue to advise moderation in exposure to precious metals. Yash Sedani, Assistant Vice President, Investment Strategy at 1 Finance, said, “For investors with a moderate risk appetite, the key lies in maintaining a disciplined asset allocation aligned with financial goals and risk tolerance. Chasing short-term rallies driven by sentiment or global events can derail long-term wealth creation.”

Sedani added that gold and silver should together make up 10–15% of an overall portfolio, acting as hedges or diversifiers rather than speculative bets. “A one-year surge should not dictate allocation decisions. Balance, not impulse, ensures peace of mind and financial resilience across market cycles,” he advised.

The road ahead

Mutual fund houses are expected to review the suspension once price premiums normalise and physical silver supply improves. For now, Systematic Investment Plans (SIPs) in Silver ETF FoFs may continue depending on each fund’s policy, allowing small investors to maintain gradual exposure.

The episode highlights the growing tension between rising investor demand and tight metal supply, as silver’s dual identity — part precious metal, part industrial commodity — keeps it at the centre of both market exuberance and caution.