Why Kotak Mutual Fund has suspended lump sum and switch-ins in Silver ETF Fund of Fund

Kotak Mutual Fund has temporarily suspended all fresh or additional lump sum and switch-in transactions in Kotak Silver ETF Fund of Fund (FoF). SIPs and redemptions from the FoF will continue to be made regularly.

No suspension has been announced for Kotak Silver ETF as it is a listed fund, which doesn't have a provision for suspension.

Why has Kotak Mutual Fund suspended lump sum/switch-ins?

Amid skyrocketing silver prices, the Kotak Mutual Fund's decision to suspend lump sum and switch-in subscriptions to its silver FoF may come as a surprise to many investors.

However, the mutual fund house said the decision has been taken to protect investors' interest amid a high spot premium for silver over the import parity price.

"Investors are hereby notified that, due to current market conditions, silver is trading at a premium relative to international prices. This is primarily due to a shortage of physical silver in the domestic market," Kotak Mutual Fund said in a notice-cum-addendum.

Kotak MF said the premium in domestic silver prices directly impacts the valuation of the scheme.

"As a result of the current scenario and in the interest of investors, Kotak Mahindra Asset Management Company Limited (KMAMC) has decided to temporarily suspend all fresh/additional lumpsum/switch-ins transactions in the Kotak Silver ETF Fund of Fund effective October 10, 2025."

It further said that the global silver markets have experienced a sustained demand-supply deficit over recent years, driving prices upward. In light of this trend, the AMC had been advising investors to consider allocating funds to silver as part of a diversified portfolio.

However, domestic silver is currently trading at a significant premium compared to international prices due to acute scarcity in India's physical silver market.

Difference between international landed prices and domestic silver prices

The table below illustrates the widening price spread between international landed prices (1150 spot price after currency conversion + applicable levies) and domestic silver prices:

Source: Kotak MF

Key observations from Kotak Mutual Fund

• The premium has increased from approximately 0.5% in early September 2025 to 5.7% as of October 9, 2025

• On October 9, the intraday premium peaked at 12% before closing at 5.7%

• Current market conditions show a buying premium of approximately 10% and a selling premium of approximately 3%

With effect from October 10, 2025, the following has been suspended:

• Lump sum/switch-in investments in Kotak Silver ETF Fund of Fund

• SIP (Systematic Investment Plan)/STP (Systematic Transfer Plan) investments will continue uninterrupted

• Existing SIPs/STPs in Kotak Silver ETF Fund of Fund

During the suspension period, redemptions (including switch-outs) will continue to be permitted in accordance with the terms outlined in the Scheme Information Document.

"The aforesaid suspension is temporary in nature and will continue only till further notice in this regard. All other terms and conditions of the Scheme Information Document (SID)/Key Information Memorandum (KIM) of the scheme remains unchanged.

"All purchase or switch-in transactions of the Scheme timestamped on or before 3.00 PM of October 09, 2025, shall be accepted and processed at applicable NAV. All existing/new Systematic Investment Plan, Systematic Transfer Plan, etc. offered by the scheme will remain operational."

The Silver FoF will open for subscription whenever the spot premium aligns with the import parity price.

Is there a change in silver outlook?

No. The fund house continues to maintain a bullish outlook on silver as an asset class on a long-term basis.

Kotak MF anticipates the shortage in domestic silver supply to persist through the end of October 2025.

It also said that this temporary restriction on lump sum/switch-in investments should not be interpreted as a negative view on silver as a commodity.

"The selling premium remains modest at approximately 3% and we continue to maintain a constructive outlook on silver from a long-term investment perspective. This measure is purely aimed at protecting investors from entering at inflated domestic premiums."