Rally in Indian Silver ETFs: Premiums Leap Beyond NAV
Indian investors have flocked to silver exchange-traded funds (ETFs) on the National Stock Exchange (NSE), driving prices higher even as the underlying metal’s official NAVs lag. Top-traded silver ETFs from major fund houses, including SBI Mutual Fund, HDFC Mutual Fund, and Axis Mutual Fund, are posting gains of roughly 9% to 13% in recent sessions. Yet their NAV-based valuations suggest the units are trading at a notable premium, with investors effectively paying between 2% and 10% above the actual silver value held by the funds.
What’s Behind the Premium: FOMO or Fundamentals?
Market observers are quick to point to sentiment as a key driver of the current surge. Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, characterizes the move as a classic “FOMO” (fear of missing out) buying frenzy. “Silver just hit ₹1.5 lakh per kg — and suddenly, everyone wants a piece of the metal. Investors who ignored silver below ₹1 lakh are now rushing into Silver ETFs, even if it means paying a hefty premium,” he noted.
Even as ETF prices soar, near-term futures for MCX Silver December have softened about 0.6%, underscoring a disconnect between retail enthusiasm and immediate fundamental signals. The macro narrative remains that premiums are rising as demand for physical metal tightens supply chains, while the ETF market absorbs inflows at a rapid clip.
Supply Tightness and Global Deficit Drive the Move
Analysts are attributing the rally to a confluence of factors: a persistent deficit in silver supply, strong investment demand, and growing industrial use in solar panels and electric vehicles. The Silver Institute projects a 2025 global deficit of around 100 million ounces, marking the fifth consecutive year of shortage. Meanwhile, Nomura warns of a possible global shortfall of 142 million ounces this year, with prices potentially hovering in the $50–55 per ounce range in the near term. Julius Baer adds to the bullish edge, suggesting a $52–58 range driven by expectations of lower real rates and robust industrial demand.
Sourcing Challenges and Fund-Manager Constraints
As the bullion tightness intensifies, physical metal becomes harder to secure for ETF issuers. A shortage of freely available silver on the London market has squeezed supply chains, exacerbating valuation pressures for ETF sponsors. In response to these dynamics, Kotak Mahindra AMC temporarily suspended fresh and additional lump-sum or switch-in investments into its Kotak Silver ETF Fund of Fund from October 10, citing supply and valuation pressures. Other silver ETFs from Nippon India, HDFC, UTI, Tata, and Kotak are also trading at or near all-time high NAVs on the NSE.
Investor Guidance: How to Navigate Elevated Premiums
Given the price dynamics, market professionals urge caution. The current phase appears to reflect sentiment-driven excitement rather than a fundamental re-pricing of silver’s intrinsic value. “Retail enthusiasm tends to peak near tops,” says Apurva Sheth. “The current disconnect between ETFs and physical silver indicates speculative momentum, not fundamental repricing.”
For investors, several prudent paths emerge:
– Consider waiting for premiums to normalise before adding new exposure.
– Use staggered or systematic investment plans (SIPs) rather than lump-sum purchases during volatile periods.
– Diversify with a mix of physical holdings, other precious metals, or broader commodity exposures to mitigate single-asset risk.
– Monitor the gold–silver ratio as a supplementary gauge of relative value within the precious metals complex.
Long-Term Outlook: Is Silver Ready for a Breakout?
Silver has outperformed gold in 2025, with the gold–silver ratio tightening meaningfully this year. Production costs for miners are estimated at just $8–$26 per ounce, which supports the metal’s underlying value proposition. Yet with the rally showing signs of overextension, investors should weigh the odds of continued upside against potential volatility driven by macro shifts, such as real interest-rate movements and policy changes that affect industrial demand.
Bottom Line
In today’s market, silver ETFs on the NSE sit at a notable premium to their NAVs, a phenomenon driven by demand pull and supply constraints rather than pure fundamental repricing. While the long-term thesis for silver remains constructive, the present rally is heavily sentiment-driven. Investors should proceed with caution, consider premiums when sizing new allocations, and favor disciplined, diversified approaches over indiscriminate, lump-sum bets.
