“Sales by multi-asset schemes of mutual funds later caused the premiums to narrow by the day end,” said Satish Dondapati, fund manager at Kotak Mahindra AMC, adding that when there is a supply shortage, silver ETFs typically trade at a 0.5–1% premium to spot prices.
The premiums, though, remained well above normal for the rest of the day. Notably, multi-asset schemes of mutual funds hold around 20% of their assets in gold and silver.
Fund managers said the elevated premium seen on Thursday is likely to persist in the short term as domestic bullion dealers from whom they source the metal had little to no stocks of silver.
“In the past three to four weeks, we have seen a surge in silver demand,” said Vikram Dhawan, head of commodities and fund manager at Nippon India Mutual Fund, which runs the largest gold and silver ETFs in the country.
He cited multiple factors—the upcoming festive season, increased physical demand from households for bars and ornaments, as well as from industrial buyers, restocking by traders and retailers, and rising ETF demand.
Silver ETFs begin trading on stock exchanges at 9:15 am while the bullion markets get active from 10 am. If demand spikes unusually during this window, premiums can surge as sourcing becomes a challenge.
A fund manager said that Thursday’s outsized spike in demand coincided with the gap in spot market opening, driving premiums to record highs.
Dandapati said Thursday’s 10-12% spike is attributable to a “sudden surge” in investment demand, buoyed by expectations of continued price gains amid strong industrial consumption in semiconductors, chips, and electric vehicles, and with spot prices hitting a record high.
According to data from Bloomberg, spot silver prices hit a peak of $49 an ounce on Thursday, significantly higher than the previous record $37.87 an ounce hit on 31 March 2011. Indian silver prices take cues from overseas silver prices as India is a net importer of silver.
ETF price action reflected the frenzy. Nippon Silver ETF opened flat at ₹159.93 per gram, surged 9.5% to ₹165, and closed up 3.46% at ₹156.16. Kotak Silver ETF rose 11% in early trade to ₹168 before ending the day 2.8% higher at ₹156.
Dhawan explained that current silver ETF prices actually indicate that spot physical silver prices are higher than the derived prices. “ETF prices act as bellwethers; they are simply the messenger, not the problem. The reason arbitrageurs are not rushing in to exploit this premium is that ETF prices are already reflecting the physical market reality,” he said.
A well-known bullion dealer in Mumbai’s famed Zaveri Bazaar bullion market confirmed a shortage of silver bars and coins following a surge in investment demand.
He added that dealers were trying to speed up imports from international centres like Switzerland and London by air, rather than the usual sea route.
“The import orders are delayed because of the recent spike in demand by investors who missed out the first part of the rally and who, now hurt by FOMO, were hopping on to the bandwagon,” the dealer said, requesting not to be named.
Silver prices, based on the MCX generic contract, have risen 71% so far this year to ₹1.5 lakh per kg, outpacing gold’s 60% gain. Imports of silver jumped nearly 200% year-on-year in April–July FY26 to 1,398 tonnes, valued at $1.46 billion, according to commerce ministry data.
In a notice-cum-addendum, Kotak Mahindra Mutual Fund announced that, effective 10 October, it will temporarily suspend lump-sum and switch-in transactions in the Kotak Silver ETF Fund of Fund, which invests in Kotak Silver ETFs. The move comes as silver trades at a premium to international prices amid a domestic supply shortage.
An official from Kotak AMC told Mint that the supply constraint is expected to ease by Diwali. Once the deficit is resolved, ETF prices could realign with international silver prices.
