Kotak Mutual Fund has temporarily halted new lump sum investments in its Silver ETF. The reason cited is the high level of domestic premium and price appreciation driven by market sentiment. According to MD Nilesh Shah, this step has been taken to protect investors' interests. SIPs and redemptions will continue.
Silver ETF: Kotak Mutual Fund has temporarily halted new lump sum investments in its Silver ETF due to a sharp surge in domestic silver premiums. Nilesh Shah, MD of Kotak AMC, stated that this measure was taken to protect investors' interests and stabilize the ETF premium. However, SIP investments and redemptions will continue without any hindrance. The fund house mentioned that ETF trading will remain open, and new subscriptions will resume once the premium normalizes.
Reason Behind the Temporary Halt
Nilesh Shah explained that the current premium on the Silver ETF has reached up to 10 percent. This is attributed to the surging demand for silver in the domestic market compared to global prices, coupled with a supply shortage. He added that silver prices are determined on a dollar basis, which includes import duty and GST. Consequently, investors have to pay this premium when purchasing the ETF.
Nilesh Shah also clarified that the underlying Kotak Silver ETF will remain open for trading. It will be reopened for new subscriptions once the premium stabilizes. He stated that the fund house maintains a b long-term bullish outlook on silver. Silver's role as a hedge against global energy transition and market volatility will remain robust.
Market Conditions
Apoorv Sheth of Samco Securities also shared his views on the situation. He noted that major ETFs like SBI Silver, HDFC Silver, and Axis Silver on NSE have surged by 9 to 13 percent. These are trading significantly above their Net Asset Value (NAV). Meanwhile, MCX Silver December futures saw a 0.6 percent decline. This indicates that the rally in Silver ETFs is not driven by fundamentals but rather by market sentiment.
Sheth advised investors to exercise patience. He stated that now is not the right time to invest in ETFs trading at a premium. He recommended waiting for prices to decrease or for the NAV to align with the market. He believes that silver's long-term outlook remains b, but choosing the right time to invest is more crucial.
Impact on Investors
Kotak MF's move has heightened caution among both small and large investors regarding investments. Currently, investors who wished to buy Silver ETFs at a high premium have been halted. However, there is no impediment for SIP investors or those who have already invested.
Nilesh Shah stated that this halt is temporary, and the Silver ETF will be reopened for new investors once the market premium stabilizes. This implies that investors must maintain patience and caution in their investment decisions.
Kotak Halts Investments at Premium
Analysts assert that silver's long-term valuation is robust. Global demand for silver remains consistent, particularly in both industrial and investment sectors. The surge in global silver prices is also supported by the weakening US dollar and central bank purchases.
Both Nilesh Shah and Apoorv Sheth clarified that investing at a premium can be risky at present. Investors should only invest after observing market momentum and the balance of NAV.
In this situation, Kotak MF's action demonstrates that the fund house prioritizes investors' interests during market volatility. This decision serves not only as a warning to investors but also underscores the importance of disciplined investment in the market.
