Why are fund houses hitting pause on silver ETF investments?

Several major mutual funds across India have stopped accepting fresh lump sum investments in silver ETF funds of funds. Kotak, SBI, UTI, Tata, ICICI Prudential, Axis, Aditya Birla Sun Life and Groww have all pressed pause since early October 2025. The decision stems from an unusual market situation where domestic silver prices are trading at steep premiums ranging from 5% to 12% over international rates, compared to the typical premium of less than 1%.

This divergence creates a valuation problem. Silver ETFs track physical silver prices, so when domestic prices shoot far above global benchmarks, new investors effectively overpay. Fund houses halted subscriptions to protect retail investors from entering at inflated prices that could quickly correct once supply normalises. The suspension applies only to lump sum and switch-in investments, while existing systematic investment plans and redemptions continue unaffected.

The root cause lies in severe physical silver shortages. India depends on imports for over 80% of its silver needs, but global supply has lagged behind demand for four consecutive years. About 70% of silver comes as a byproduct of mining other metals like copper and zinc, limiting production flexibility. Meanwhile, industrial demand from solar panels, electric vehicles and electronics keeps climbing, with projections showing industrial fabrication exceeding 700 million ounces in 2025. Adding festive demand ahead of Dhanteras and Diwali into this tight supply situation created the perfect storm.