Silver ETFs Trade at Wild Premiums and Discounts as Prices Experience Sharp Volatility
Silver ETFs in India trade at significant premiums or discounts to underlying prices due to supply-demand imbalances and domestic market dynamics. On January 22, DSP Mutual Fund's Silver ETF traded at Rs 279.00 per unit with an iNAV of Rs 287.48, showing a discount to intrinsic value. During high demand periods, premiums range from 5-12 percent across bullion ETFs, while pricing mechanisms tied to MCX futures create additional volatility during market transitions.
*this image is generated using AI for illustrative purposes only.
Silver ETFs in India have been experiencing significant price volatility, with funds trading at substantial premiums or discounts to their underlying asset values as retail investor demand creates supply-demand imbalances in the market.
Sharp Price Movements Create Trading Disparities
Silver prices experienced extreme volatility on January 22, with ETFs reflecting sharp disconnects from their intrinsic values. DSP Mutual Fund's Silver ETF demonstrated this phenomenon clearly:
| Metric: | Value | Change |
|---|---|---|
| ETF NAV (3 p.m.): | Rs 279.00 per unit | Down over 9% |
| Indicative NAV (iNAV): | Rs 287.48 | - |
| Trading Status: | Discount to intrinsic value | - |
This disparity occurs because ETF market prices can differ significantly from the value of the silver they represent, particularly during periods of high demand or supply constraints.
Premium and Discount Ranges
Indian silver ETFs often trade at steep premiums or discounts to their iNAV due to domestic supply dynamics and physical shortages. During periods of high demand, the market has seen premiums ranging from 5-12 percent across bullion ETFs.
The distortion occurs when huge demand to buy ETFs overwhelms limited supply, causing prices to swing wildly. Since silver ETFs must purchase the underlying asset for every unit created, liquidity can be thin compared to surging demand, driving NAVs far above spot prices.
MCX Futures Impact on ETF Pricing
ETF pricing mechanisms are closely tied to MCX silver futures, creating additional volatility during market transitions. On January 21, this relationship was clearly demonstrated:
| Parameter: | Details |
|---|---|
| MCX Silver (3:30 p.m.): | Near Rs 3,33,400 |
| MCX Silver (Close): | Rs 3,18,400 |
| ETF Market Close: | 3:30 p.m. |
| Price Decline Reflected: | 4.50% |
Satish Dondapati, Fund Manager at Kotak Mahindra AMC, explained that most bullion dealers sell silver to AMCs at prices linked to MCX futures, with adjustments for market demand and supply factors. The combined impact of MCX price declines and premium corrections can lead to sharp falls in ETF prices.
Supply Dynamics and Fund Flows
Unlike October 2025 when fund houses paused inflows due to physical silver shortages, January's rally occurred with adequate supply. The difference stems from physical silver imported during November 2025, ensuring sufficient inventory for ETF creation.
Bhavik Patel from Tradebulls Securities noted that the sudden surge of buyers or sellers can overwhelm markets with limited volume, but these distortions typically don't last long as prices revert to underlying instrument movements.
Import Duty Expectations
Indian markets are showing significant premiums in domestic silver futures compared to global markets. Until recently, the premium was around 12-15 percent, which has narrowed to about 6 percent after accounting for landing costs and currency factors. This premium reflects market anticipation of possible silver import duty hikes in upcoming budget announcements.
Investment Outlook
Despite volatility, experts offer mixed perspectives on silver ETF investments. Akshat Garg, Head of Research & Product at Choice Wealth, advised new investors to consider silver ETFs for diversified portfolios, citing robust structural drivers including central bank accumulation and industrial demand. However, Aamir Makda from Choice Broking expects further correction of 15-20 percent from recent closing levels, viewing current movements as classic safe-haven liquidation.
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