Kotak Mutual Fund to Launch Gold Silver Passive FoF Despite Elevated Silver Prices

Contents

Silver Price Rally and Supply Constraints Kotak MF Halts Lump-Sum Silver Inflows Strategic Launch of Gold Silver Passive FoF Investment Considerations Highlights of Kotak Gold Silver Passive FoF

Fund house expects silver prices to stabilize after Diwali, investors advised to plan accordingly

Kotak Mutual Fund confirmed that its new Gold Silver Passive Fund of Fund (FoF) will launch as scheduled, even as silver prices trade at elevated levels. The fund expects domestic silver prices to normalize after the Diwali festive season, enabling deployment at fair market value.

The fund, which opened for subscription on October 6, will invest primarily in Kotak Gold ETF and Kotak Silver ETF, with asset allocation determined by an in-house model. About five percent of the fund will be allocated to money market instruments to maintain liquidity, while the remaining 95 percent will be invested in precious metals.

Silver Price Rally and Supply Constraints

Silver prices have seen a sharp rally in 2025, driven by increased demand both as a safe-haven investment and industrial metal. Domestic supply shortages have caused silver ETFs to trade at a premium of around 8-10% compared to international landed prices.

“Every year, around one-third of gold and silver consumption in India occurs during Dhanteras and Diwali. Current premiums are due to festive demand and temporary supply constraints,” said Satish Dondapati, Fund Manager ETF at Kotak Mahindra AMC, in a conversation with Moneycontrol.

This premium arises because physical silver is exchanged for ETF units. When supply is tight, creation of new ETF units slows, leading to prices above the indicative Net Asset Value (iNAV), which could expose new investors to overvaluation.

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Kotak MF Halts Lump-Sum Silver Inflows

Earlier this month, Kotak was the first fund to suspend lump-sum inflows into its Silver ETF Fund of Fund due to the steep premiums. Nilesh Shah, Managing Director at Kotak Mutual Fund, told CNBC-TV18 that if SEBI rules permitted, he would have also halted inflows into the Silver ETF.

“I don’t feel comfortable taking a 10% premium from investors,” Shah said.

Following Kotak, other fund houses including SBI Mutual Fund, UTI Mutual Fund, ICICI Prudential, and HDFC Mutual Fund restricted or stopped investments in their respective Silver FoFs.

Strategic Launch of Gold Silver Passive FoF

Despite these challenges, Kotak MF maintained the planned launch of the Gold Silver Passive FoF, aiming to provide long-term capital appreciation from gold and silver ETFs. The fund’s strategy is back-tested over 20 years, showing returns outperforming individual gold and silver ETFs.

Dondapati explained that the recent supply constraints emerged only last week, after the fund’s launch date was decided.

“The launch was planned well before these supply issues. Premiums typically rise ahead of festivals, and we expect them to normalize within weeks, allowing deployment at fair value,” he added.

The fund’s allotment date is November 28, and SEBI regulations allow the fund manager up to 30 days from allotment to fully deploy the capital into ETFs.

Investment Considerations

Market experts note that gold and silver consumption peaks during the festive season, creating temporary price volatility. Investors considering Kotak’s FoF should focus on long-term wealth creation rather than short-term price swings.

The Gold Silver Passive FoF provides an opportunity to diversify into precious metals, combining gold for stability and silver for potential high returns as supply-demand dynamics normalize.

Highlights of Kotak Gold Silver Passive FoF

NFO Opening Date: October 6, 2025
Allotment Date: November 28, 2025
Asset Allocation: 95% gold & silver ETFs, 5% money market instruments
Underlying ETFs: Kotak Gold ETF, Kotak Silver ETF
Investment Objective: Long-term capital appreciation from precious metals
Market Conditions: Elevated silver premiums (8-10%) expected to normalize post-Diwali

Kotak Mutual Fund’s Gold Silver Passive FoF is set to proceed despite the temporary silver price spike, positioning investors to gain from long-term appreciation in gold and silver ETFs. The fund house expects price normalization post-Diwali, offering a strategic entry point into precious metals while maintaining diversification and risk management.

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