Why silver ETFs trade at wild premiums and discounts as prices swing

Silver ETFs hit a fresh record high in trade today.

• Indian silver ETFs often trade at premiums or discounts to real silver prices.
• ETF prices can fluctuate due to supply, demand, and import duty changes.
• Experts recommend holding silver ETFs for diversification despite price drops.

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Silver prices have been on a tearaway rally. However, silver ETFs in India have often traded at a sharp premium (or sometimes, discount) to the price of the underlying asset as retail demand booms. This often results in the ETF's NAV or net asset value quoting a higher price compared to its indicative net asset value (iNAV), silver futures, and also silver spot prices.

ETF NAVs versus iNAVs

For example, silver prices took an extremely sharp tumble in trade on Thursday, January 22, as safe haven demand for the white metal eases. At 3 p.m., DSP Mutual Fund's Silver ETF was quoting an NAV of Rs 279 per unit, down well over 9 percent. However, its iNAV was Rs 287.48, higher than the currently traded price, indicating the ETF was trading at a discount to its intrinsic value.

Indian silver ETFs often trade at steep premiums or discounts to their iNAV because of domestic supply dynamics and physical shortages. This means the ETF market price can be different as compared to the value of the silver that it represents. During periods of high demands, the market has seen premiums ranging from 5-12 percent across bullion ETFs.

Since silver ETFs have to purchase the underlying asset for every unit created, liquidity can be thin compared to the surge in demand. So when investor interest in the security rises, the surging demand drives up the NAV far above the spot price of the metal, higher than the change in actual metal prices.

It is a rare phenomenon and the distortion occurs when there is huge demand to buy ETFs - which really makes the price swing wildly. However, the underlying's movement doesn't always mirror the ETF's price movement.

"However, this phenomenon does not last long and price does revert back to the underlying instrument’s movement. The sudden surge of buyers or sellers overwhelms the market with limited volume and that is why we see such distortion," Bhavik Patel from Tradebulls Securities explained.

ETF NAVs versus silver futures

Satish Dondapati, Fund Manager, Kotak Mahindra AMC shared an insight into how silver ETF prices move when compared to MCX silver futures/WHY NOT SPOTS. The premiums (or discounts) are adjusted based on the demand and supply. "Small premiums or discounts can arise based on demand and supply, as most bullion dealers sell silver to AMCs at prices linked to MCX futures, with adjustments for these market factors," he said.

For example, on January 21, MCX Silver was near the Rs 3,33,400 mark at 3.30 p.m., but it closed at Rs 3,18,400. But the ETF market closes at 3.30 p.m., and reopens at 9.15 a.m., so when they opened for trade, ETFs reflected the 4.5 percent decline in MCX prices.

Additionally, ETFs were already trading at a premium, and that premium was erased. "As a result, the combined impact of the MCX price decline and the correction of the exchange premium led to the sharp fall in ETF prices," added Dondapati.

Aamir Makda, Commodity & Currency Analyst, Choice Broking added that since silver ETFs rely on futures, which are subject to margin calls during volatile periods, potentially leading to a "liquidation cascade" that drives futures prices down more sharply than spot prices, consequently impacting the ETF’s value.

Fund houses had paused inflows once, why not again?

In October 2025, a series of fund houses even paused inflows into their silver fund of funds as the silver frenzy continued unabated. However, during the January upmove, silver FoFs and ETFs remained open for retail flows.

An ETF has to acquire physical silver to create new ETF units and in October 2025, there was shortage of physical silver. Even jewellers were quoting a premium over the official price. However, in January, the rally was different, as there is plenty of supply of physical silver in the market, which was imported during November 2025, added Patel.

Changes in silver duties incoming?

Indian markets  are seeing a significant premium in domestic silver futures compared to global markets. Until yesterday, the premium was around 12-15 percent, which has now narrowed to about 6 percent after accounting for all landing costs of silver and assuming no rupee depreciation.

This premium reflects market anticipation of a possible hike in silver import duties. If no such announcement is made in the Budget, prices could move back towards parity with global markets by March, said Patel.

What should investors do?

Despite the sharp run-up, Akshat Garg, Head - Research & Product of Choice Wealth advised new investors to consider taking positions in Silver ETFs as part of building a diversified multi-asset portfolio, capitalizing on the metal's robust structural drivers.

"Existing Silver ETF holders should avoid exiting at current levels, as the supportive forces remain intact. Gold and silver are very important for investors due to central bank accumulation, monetary easing tailwinds, and silver's surging industrial demand," he added.

On the flip side, Makda added that this correction can be seen as a classic safe-have liquidation. "We are expecting more correction in Silver ETF prices by 15-20 percent from Thursday’s closing," he added.

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