Why MFs are freezing silver ETF investments - and what it means for you

Shortage, Soaring Premiums Force Funds Like Tata, Axis, Kotak to Suspend Silver FoF Subscriptions

Tata Mutual Fund on Tuesday joined several other mutual fund houses to temporarily suspend fresh investments in its Tata Silver ETF Fund of Fund (FoF), citing an ongoing shortage of physical silver in the domestic market and a sharp premium in local prices compared to global benchmarks.

 

The suspension will take effect on October 14, 2025, and applies to lumpsum purchases, switch-ins, and new registrations of Systematic Investment Plans (SIPs) and Systematic Transfer Plans (STPs) into the scheme.

 

According to the fund house, the move is a precautionary step to protect investors from potential mispricing in the scheme’s Net Asset Value (NAV) due to unusual market conditions.

 

 

“Due to prevailing market conditions and shortage of physical silver in the domestic market, silver is trading at a premium relative to international prices. The premium directly impacts the valuation of the scheme,” Tata Mutual Fund said in its addendum.

 

What’s Still Allowed

 

While new subscriptions are on hold, existing investors remain unaffected. Tata MF clarified that:

 

Existing SIPs and STPs already registered will continue as scheduled.

 

Redemptions, switch-outs, and Systematic Withdrawal Plans (SWPs) will be processed as usual.

 

Transactions submitted before 3:00 PM on October 13, 2025 will be accepted and processed at the applicable NAV.

 

The suspension is described as temporary and will continue only until further notice.

 

Why the Suspension Was Needed

 

The suspension is described as temporary and will continue only until further notice.

 

The move comes at a time when the Indian silver market is facing a tight supply situation. Domestic prices have surged sharply during the festive season, with silver trading 5–12% higher than international prices.

 

This premium has been driven by:

 

High festive demand for silver coins, bars, and jewellery;

 

Increased industrial demand from sectors such as solar, EVs, and electronics;

 

Limited imports and lower availability of physical bullion.

 

Because the Tata Silver ETF Fund of Fund invests in the Tata Silver Exchange Traded Fund (ETF) — which directly tracks the domestic price of silver — this gap between local and international markets makes it difficult to fairly value the scheme for new investors.

 

By pausing fresh inflows, Tata MF aims to protect investors from overpaying during this period of inflated silver prices.

 

Industry Context

 

Apart from Tata MF, a growing number of mutual funds in India — including Axis, Kotak, UTI, and SBI — have temporarily suspended new investments into their Silver ETF Fund-of-Funds (FoFs). The move comes amid a sharp rise in silver prices and a widening gap between domestic and international silver valuations.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.

 

Why suspensions are occurring across the board

 

Most silver ETFs are currently trading at a 5–10% premium over their indicative Net Asset Values (iNAVs), as investors rush into silver amid bullish sentiment. 

Business Standard

 

 This premium arises because domestic silver is in short supply, pushing its price higher than the global benchmark.

 

Both Axis and Tata cite this distortion as a key reason:

 

“Supply constraints in physical silver are causing a surge in silver ETF prices as ETFs are backed by physical precious metal — i.e., silver ETFs are trading at a premium to their respective iNAVs. 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 FoF."

 

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.

 

By halting new subscriptions during peak premiums, fund houses aim to protect new investors from entering at inflated valuations. If funds were to continue accepting new money while silver is overvalued, those investors might face valuation corrections later.

 

Silver ETFs / FoFs rely on authorized participants (APs) to create or redeem units by delivering or receiving physical metal. But when silver is expensive and supply is constrained, APs may be reluctant or unable to execute these operations. This leads to tracking errors and mismatches between ETF price and true NAV — a risk that fund houses want to avoid.

 

Investor Impact

 

Existing investors: Your SIPs, STPs, and holdings continue to function normally. You can redeem, switch out, or withdraw via SWPs as per scheme rules.

 

New investors: You cannot start fresh lumpsum investments or switch-ins until the suspensions are lifted.

 

Pending orders: Transactions time-stamped on or before 3:00 PM on October 13, 2025 will be processed under the existing rules.

 

Silver exposure: Investors seeking exposure may consider alternatives like commodity / precious metal funds or international silver ETFs (if accessible), but should remain cautious about premiums and valuation distortion.

 

When might the suspensions be lifted:

 

Funds are likely to reopen subscriptions once:

 

The premium in domestic silver prices narrows, aligning more closely with global benchmarks.

 

Physical silver supply normalizes, making it viable for APs to create and redeem units smoothly.

 

Market demand stabilizes and volatility in silver subsides.

 

Until then, these suspensions serve as a protective measure by fund houses to avoid misvaluation and ensure fairness among investors.