Paying too much? Silver ETFs look shiny, but mind the 5-12% premium risk

Silver ETFs Look Shiny, But Mind the 5-12% Premium Before You Buy

Silver is in the spotlight this festive season. Prices have shot up sharply, and investors are rushing to buy silver exchange-traded funds (ETFs) and fund-of-funds (FoFs) to join the rally. 

But experts say there’s a catch — Indian silver prices are currently 5–12% higher than global prices, which means investors could be paying more than fair value in the short term. 

supply. A confluence of factors – from record festive buying to global supply deficits – has driven domestic silver prices to record highs and pushed ETF prices to trade at steep premiums over international benchmarks.

 

Why silver prices are rising

 

 

According to a new report by Axis Mutual Fund, global demand for silver has surged while supply has failed to keep up.

 

Global mine output has grown only modestly, expected to peak by 2026, while industrial and investment demand is hitting record levels, driven by green economy, high-tech applications and rising usage in solar photovoltaics, electric vehicles (EVs), electronics, 5G infrastructure, and semiconductors.

 

Even central banks have shown interest in silver – a highly unusual development. Saudi Arabia’s central bank recently started buying silver, marking a rare deviation from the gold-centric norm, which further increased gap between demand and supply.

 

Investment inflows into silver have soared globally, with silver-backed ETFs and other investment products seeing record additions. In the first half of 2025 alone, global silver ETFs added about 95 million ounces – exceeding the total inflows of the entire previous year – pushing total holdings to an all-time high of ~1.13 billion ounces (worth over $40 billion) by mid-2025.

 

Meanwhile, physical demand in India has been exceptionally strong. In the lead-up to the festive season (Dhanteras and Diwali, traditionally important occasions for buying precious metals), buyers have flocked to purchase silver – coins, bars, jewellery, idols. In fact, India’s silver imports nearly doubled in September compared to last year, as bullion dealers and jewellers scrambled to secure inventory despite record-high prices. This has exacerbated a short-term scarcity in the domestic market.

 

As a result, a demand-supply mismatch that has pushed domestic and retail silver prices well above international benchmarks. 

What’s happening with Silver ETFs

 

Silver ETFs in India invest in physical silver. Normally, ETF prices are close to global silver prices after adjusting for taxes and import duties. But right now, there’s a shortage of physical silver, so ETF prices have moved higher.

 

As a result, Silver ETFs are trading at a 5–12% premium to global prices. This means when you invest in a silver ETF today, you’re paying more than what silver is worth internationally.

 

If supply improves later, this premium may disappear, and ETF values could fall — even if global silver prices don’t change. 

Implications: Silver Price Surge and ETF Volatility

• Physical Silver in India trading at a premium over international benchmarks like LBMA Silver Price

• Retail investors flocking to Silver ETFs and FoFs, further driving up NAVs

• Investors facing challenges in fair valuation, especially when ETF units are priced above the intrinsic value

of Silver in spot market

• Huge volatility in Silver ETFs; trading at a 5–12% premium over the converted LBMA price (inclusive of

Customs and GST). 

Physical Silver in India trading at a premium over international benchmarks

 

As shown above, the premium enters at the physical market level and flows through to ETFs/FoFs. Under normal conditions, any gap between Indian and global prices would be small and arbitraged away (since ETF authorized participants can swap silver for units and vice versa). But in the current scenario, with physical silver scarce, the premium persisted, and even ETF arbitrageurs could not immediately bridge the difference.    Should you invest now?

 

Experts say silver remains a good long-term investment. It’s increasingly being used for technology and clean energy, and also works as a hedge against inflation and market volatility — just like gold.

 

However, if you’re investing only for the short term, you should be cautious. Entering when prices are inflated could lead to short-term losses if the premium corrects.

 

"The current domestic premium of 5–12% means effectively paying that much above the global fair value of silver. This inflated entry price carries the risk of a NAV correction in the near term. If and when India’s silver supply catches up, the local price premium could evaporate – and ETF/FoF NAVs might drop even if international silver prices stayed flat. In other words, a portion of the price you’re paying now (the premium) might “wash out” as supply normalizes," the report warned. 

India’s silver story remains structurally bullish — driven by industrial demand, investment flows, and diversification needs.

But for retail investors, the lesson is clear: understand what you’re paying for. Buying into silver ETFs at a premium could dent short-term returns, even in a bullish market.

 

As always, mutual fund experts advise investors to align their silver exposure with their risk appetite and investment horizon, and consult financial advisers before making allocation decisions.