ETF Trading Could Change Soon: SEBI Weighs iNAV-Based Price Bands

Exchange-traded funds (ETFs) have seen rapid growth in India, with assets under management crossing ₹10 lakh crore in 2025. As more investors turn to ETFs for low-cost and transparent investing, the Securities and Exchange Board of India (Sebi) is considering a change that could make ETF trading more accurate and efficient.

The regulator is examining a proposal to use the indicative net asset value (iNAV) of the previous trading day (T-1) as the base price for setting ETF price bands, replacing the current system that relies on older data.

How ETF Price Bands Work Today

ETFs trade on stock exchanges like shares and are subject to price bands to control sharp price swings. At present:

• ETFs trade with a fixed ±20% price band
• These bands are calculated using T-2 day NAV data
• Stocks, in contrast, use the previous day’s closing price (T-1)

This mismatch creates a time lag. If markets move sharply, ETF prices may not reflect real-time changes in their underlying assets, sometimes causing ETFs to hit circuit limits even when their fair value has shifted.

What is iNAV and Why Sebi is Considering It?

The iNAV reflects the real-time value of an ETF unit based on the prices of its underlying securities. Unlike mutual fund NAVs, which are calculated once after market close, iNAV is updated continuously during market hours.

Sebi is considering the T-1 iNAV as it is more readily available and closer to actual market value than delayed NAV data. Using iNAV could help price bands move in line with real market conditions.

How This Change Could Affect ETF Investors

If SEBI adopts iNAV-based price bands, investors may see several benefits:

• More accurate pricing: ETF prices are likely to stay closer to their underlying index value.
• Lower tracking errors: Reduced gaps between market price and fair value.
• Improved liquidity: Market makers can operate more efficiently, reducing premiums and discounts.
• Fewer trading disruptions: ETFs may avoid hitting artificial circuit limits during volatile sessions.
• Better handling of corporate actions: Dividends and stock splits can be reflected more smoothly without manual adjustments.

Why Does This Proposal Matter?

As ETF volumes rise, outdated pricing mechanisms can distort trading and harm investor experience. Aligning price bands with iNAV helps improve transparency and supports smoother market functioning, especially during high-volatility periods.

Read more: Adani Power Share Price Performance Defies Rivals in 2025 As BSE Power Index Falls Nearly 14%.

Conclusion

ETF trading in India could become more efficient if Sebi moves to iNAV-based price bands. By narrowing the gap between traded prices and actual asset values, the proposed change has the potential to reduce volatility, improve liquidity, and enhance confidence in ETF investing as the market continues to expand.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.