Silver ETFs Outpace Spot Prices

Several Indian Silver ETFs are now trading at a 5–12 % premium to their net asset values (NAVs). The divergence reflects a confluence of limited supply, import delays, and heightened festive-season buying that has tightened availability in physical bullion markets.

1. Physical Shortage in Bullion Markets

Bullion dealers report that silver bars and coins are in short supply. Imports have slowed, while jewellery and industrial demand surged ahead of the festive period. In some cities, physical silver trades at ₹15 000 – ₹20 000 per kg above the usual parity price — directly influencing ETF valuations.

2. Import Duties and Taxes Amplify the Gap

Domestic silver prices already include customs duty, GST, and transport costs. When supply tightens, additional mark-ups widen the spread between global LBMA rates and Indian market values. ETFs reflect these elevated costs in their portfolios, leading to a sustained premium.

3. ETF Creation Bottlenecks

Normally, authorized participants can create or redeem ETF units against physical silver, keeping ETF prices close to NAV. But when metal is scarce, creation slows and arbitrage breaks down — allowing prices to rise above intrinsic value.

4. Investor Momentum and Fund Restrictions

Investor appetite for precious-metal exposure has remained strong. With new inflows chasing limited ETF supply, prices inflate further. Some fund houses, including Kotak and UTI, have temporarily restricted lump-sum inflows into their Silver ETF FoFs to protect investors from excessive premiums.

Impact on Investors

• Premium entry risk: Buying ETFs at inflated levels means paying above spot value.
• Potential normalization: If supply eases, premiums may compress, affecting short-term performance.
• Volatility watch: Dislocation between spot and ETF prices can swing sharply with import news or policy shifts.
• Long-term outlook: Structural demand for silver in electronics, EVs, and green tech remains strong — supporting long-term themes.

Conclusion

The current premium on Silver ETFs reflects a temporary supply-demand mismatch rather than mis-pricing. As imports normalize and market liquidity returns, prices should realign with fundamentals. Investors are advised to compare ETF values against indicative NAVs before entry and adopt a patient approach during high-premium phases.

Disclaimer: Information is based on market data as of October 2025. Premium levels may vary across ETFs and regions.