With the Tata AMC suspending/freezing fresh investments in exchange traded silver funds on Tuesday, the number of fund houses taking such protective/corrective action has reached five. Why are fund houses doing so? The simple and quick answer is the acute shortage of the white metal, which has led to prices soaring and the resultant rising premium that has climbed around 12% over the physical metal.
Apart from Tata MF, other fund houses that have temporarily suspended new investments into their silver ETF fund-of-funds are Axis Mutual Fund, Kotak AMC, UTI AMC, and SBI Mutual Fund.
As per Axis MF, total silver ETF holdings in the country is roughly 1.13 billion ounce, which is worth over $40 billion by mid-2025. In a statement earlier in the day, Tata MF said it is temporarily suspending purchases, switch-ins, fresh SIPs, and fresh Systematic Transfer Plans or STPs into the scheme in the Tata Silver ETF fund-of-fund, effective October 14.
“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 in Tata silver ETF fund of funds,” Tata AMC said.
Does one need to worry?
Those who have already an investor need not worry about the safety of her investment. The suspension is for new additions and is meant to ensure fair treatment of investors and maintain scheme integrity. The measure is just to temporarily halt new inflows until the demand-supply scenario stabilises.
Fund houses are also allowing request for withdrawals to certain times. For instance, Tata MF said it will entertain requests received till 3 pm on October 13, and will process as usual and that existing SIPs and STPs will continue also unaffected and so do redemptions, switch-outs, and SWPs remain open.
The suspension will take effect on October 14, and applies to lumpsum purchases, switch-ins, and new registrations of systematic investment plans (SIPs) and systematic transfer plans (STPs) into the scheme.
While international prices have shot up close to 62% so far this year crossing the psychologically sensitive $50 per ounce (28.35 grams) mark for the first time, the domestic prices are up over 80% so far this year at over Rs 1.81 lakh a kg.
By pausing fresh inflows, fund houses aim to protect investors from overpaying during this period of inflated silver prices.
For existing investors your SIPs, STPs, and holdings continue to function normally. You can also redeem, switch out, or withdraw via SWPs as per scheme rules. But new investors cannot start fresh lumpsum investments or switch-ins until the suspensions are lifted.
Why silver shortage
The simple answer why there is shortage is that there demand far outweighs supply which has been muted so far this year due to lower incremental mining. And the industry does not see mining normalizing before the middle of 2026.
Why excess demand
Increased industrial demand from sectors such as solar, EVs, and electronics; Axis Mutual Fund said in a note over the weekend.
The rally is being driven by a cocktail of factors, including expectations of more interest rate cuts, ongoing political and economic uncertainty, the lingering US Federal shutdown, solid central bank buying (major central banks have snapped up 15 tonnes so far this year, which is though is much lower than last year’s 90 tonnes), inflows into gold exchange-traded funds and a weak dollar.
A key reason for silver rally is the muted mining of silver this year so far but industrial and investment demand has been on a steady climb driven by solar photovoltaics, electric vehicles, electronics, 5G infrastructure, and semiconductors, Axis report said.
The domestic silver exchange‑traded funds (ETFs) are trading at steep premiums over international benchmarks amidst surging festive demand and constrained physical global supply, Axis AMC said. Investment inflows into silver products hit record levels globally in H1 of 2025, adding about 95 million ounces, exceeding the total inflows of the entire previous year. This also has pushed total ETF holdings to roughly 1.13 billion ounces (worth over $40 billion) by June 2025, the fund house report said.
According to the report, another reason is the heavy demand form central banks, which have also been snapping up gold since the past many years. Among the central banks snapping up silver is that of the Saudi Arabian central bank, amplifying the demand shock.
Physical demand in the domestic market has also been exceptionally strong due to festive demand, with buyers snapping up silver in all forms--coins, bars, jewellery, and idols. Already silver import has doubled in September as bullion dealers and jewellers scrambled to secure inventory despite record-high price, the report said.
The report warns that the inflated entry price risks a near-term NAV correction if supply normalises and the domestic premium evaporates. For medium- to long-term investors, silver is increasingly viewed as a strategic diversifier and hedge, and short-term price distortions may be less relevant for multi‑year horizons.
Limited imports and lower availability of physical bullion.
Why steep premium
Because the silver ETFs invest in the exchange traded funds which directly tracks the domestic price of physical silver and this gap between local and international markets makes it difficult to fairly value the scheme for new investors.
Physical silver supply in the domestic market is tight. With rising industrial demand, festive buying, and import constraints, acquiring silver at fair cost has become challenging. This scarcity makes it difficult for mutual funds and ETF structures to maintain the link between the fund’s NAV and the underlying metal and the premium varies from 5% to 12%. This premium arises because domestic silver is in short supply, pushing its price higher than the global benchmark.
Normally, a market maker buys silver in physical form and exchanges it with an asset management company for ETF units, which are then sold on the exchange. This mechanism keeps ETF prices aligned with actual silver prices. But when physical supply dries up, the creation process stalls, and ETF units start trading at a premium, exposing new investors to overvaluation risk.
So when domestic silver trades at a premium, that premium cascades through the entire structure from physical silver to ETF NAV to ETF market price to FoF net asset value. Since in FoF buyer invests by looking at NAVs, it does not show the exact premium in silver price, unlike ETFs, which is direct buying and selling at the current prices.
