Kotak Mutual Fund Proceeds with Gold Silver FoF Launch Despite Silver Supply Crunch

Kotak Mutual Fund confirmed that it will move ahead with the launch of its Kotak Gold Silver Passive Fund of Fund (FoF) as scheduled, even as silver prices remain high due to a temporary supply shortage. The fund house expects price stability after Diwali, citing the seasonal nature of the metal’s demand surge.

Kotak MF Confirms NFO Amid Rising Silver Premiums

The new fund offering, launched on October 6, will continue to invest in the Kotak Silver ETF as an underlying asset, despite a sharp rise in silver ETF premiums. Kotak MF was among the first to suspend lump-sum inflows into its Silver ETF FoF on October 10, as physical silver supply tightened.

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Silver ETFs are currently trading at a premium of around 10% compared to international prices. This situation arises when physical silver becomes scarce, limiting the creation of new ETF units and causing them to trade above their indicative Net Asset Value (iNAV).

Explaining the decision, Nilesh Shah, Managing Director of Kotak Mutual Fund, said on CNBC-TV18, “If SEBI permitted, I would have stopped inflows into the Silver ETF as well. I don’t feel comfortable taking a 10% premium from investors.”

Following Kotak’s move, several other fund houses, including SBI Mutual Fund, UTI MF, ICICI Prudential MF, and HDFC MF, also restricted or halted new investments into their respective silver-focused schemes.

Fund Strategy: Balanced Allocation Between Gold and Silver

The Kotak Gold Silver Passive FoF aims to generate long-term capital appreciation by investing in a mix of gold and silver through the Kotak Gold ETF and Kotak Silver ETF.

As per the Scheme Information Document, about 95% of the fund will be invested in these precious metals, while the remaining 5% will be held in money market instruments to maintain liquidity. The allocation ratio between gold and silver will be determined using an in-house quantitative model.

Historical back-testing shows that the strategy has outperformed standalone gold or silver investments over the past two decades.

Fund Manager Satish Dondapati clarified that the NFO was planned well before the recent silver shortage. “The supply issues emerged only last week. When we set the launch date, there were no indications of such disruptions,” he told Moneycontrol.

Festive Season Impact and Price Outlook

According to Dondapati, the spike in silver premiums is largely seasonal, driven by strong festive demand during Dhanteras and Diwali. He added that around one-third of India’s annual gold and silver consumption occurs during this period.

“The current 8–10% premium is temporary. We expect both demand and supply to stabilise after the festive season,” he said. The fund’s allotment date is November 28, and per SEBI’s guidelines, the AMC has up to 30 days post-allotment to deploy the capital.

Kotak MF expects that silver prices and premiums will normalise by Diwali, enabling fair-value purchases for investors. Despite short-term volatility, the AMC maintains confidence in the long-term potential of precious metals within diversified portfolios.