Silver soars to $52.5/oz, Indian MFs slam door on retail: What’s really going on?

Why have India’s biggest mutual funds stopped accepting new silver investments—just as global prices hit all-time highs? Kotak, SBI, and UTI Mutual Funds have frozen fresh lumpsum inflows into their Silver ETF Fund of Funds (FoFs), citing inflated domestic prices and fears of short-term investor losses.

1. What are Silver ETFs and Silver ETF Fund of Funds (FoFs)?

A Silver ETF tracks the price of physical silver and trades on stock exchanges. It offers exposure to silver without owning the metal. A Silver ETF FoF is a mutual fund that invests in a Silver ETF, ideal for investors without demat accounts or those using SIPs.

2. Why did fund houses freeze new investments in these silver FoFs?

Because domestic silver prices have decoupled from global benchmarks. A temporary supply shortage in India has pushed prices to a 10–12% premium over international rates—far above the usual 0.5%. Fund houses want to prevent investors from buying at overvalued levels.

3. What’s behind the global silver rally?

A short squeeze in London has fueled a historic surge. Spot prices hit $52.5868 an ounce—breaking the 1980 Hunt brothers’ peak. Safe-haven demand, geopolitical risk, and tight market liquidity are pushing traders to fly silver bars across the Atlantic, usually a strategy reserved for gold.

4. Why is there a silver shortage in India?

Analysts cite an “acute but temporary” shortage of physical silver in the domestic market. This, combined with heavy retail inflows into silver funds, has driven up local spot prices far above international parity, making it harder for fund houses to buy silver at fair value.

5. Why are Silver ETFs still trading if FoFs are restricted?

ETFs trade on the open market between investors. Mutual funds can't restrict these secondary market transactions, even if the underlying silver is overvalued. But ETF units are also trading at a premium, so investors still face the same price distortion.

6. Should investors enter silver now—or wait?

Analysts advise caution. While silver has long-term upside—driven by its role in green energy and a persistent supply deficit—current prices reflect short-term froth. A 10–15% allocation to gold and silver is ideal, but build it gradually through SIPs, not lumpsum bets.