SBI Mutual Fund, the largest fund house in India, along with UTI Asset Management Company, has temporarily suspended new investments in their silver funds of fund (FoF), which invest in their respective silver exchange-traded funds (ETFs). This decision follows a similar action taken by Kotak Mutual Fund, which had previously halted new investments in its silver FoF due to high premiums arising from a scarcity of physical silver in the spot market.
In a recent statement, SBI Mutual Fund noted that there has been a significant increase in silver demand in recent weeks, driven by global macroeconomic factors and heightened investor interest in commodities. However, limited availability of physical silver is constraining the creation of new units by the ETFs at the indicative net asset value (iNAV).
The SBI Silver ETF Fund of Fund, an open-ended scheme, primarily invests in the SBI Silver ETF, which tracks silver prices within the domestic market. The current premium in domestic silver prices directly affects the valuation of the scheme, the fund disclosed.
To safeguard investor interests in light of these conditions, SBI Mutual Fund announced that it will suspend all fresh subscriptions through lump-sum investments, effective Monday. Nonetheless, existing and new systematic investment plans (SIPs) and systematic transfer plans (STPs) will continue to function normally, while redemptions and switch-outs will also be processed during this suspension period.
Silver prices in the domestic market surged by 32% on Friday, reaching ₹1,64,500 per kg, up from ₹1,24,413 on September 8, reflecting strong price movements in international markets. Ajay Kumar, Director at Kedia Commodities, remarked that spot silver reached record highs, surpassing $51 per ounce for the first time as investors turned to safe-haven assets amidst escalating fiscal and monetary concerns.
The metal has also significantly outperformed gold, gaining over 70% so far this year, supported by tight supplies and rising borrowing costs in London. Demand from the renewable energy sectors, such as solar and wind, continues to bolster positive market sentiment. Persistent supply deficits are expected to maintain the current imbalance for the remainder of the year.
Emkay Wealth Management projects silver prices could increase by 20%, reaching $60 per ounce over the next year due to growing industrial demand. The supply-demand gap is currently estimated at 20% and is expected to remain in deficit for the foreseeable future.
