SEBI Proposes Overhaul in ETF Valuation Method for Gold and Silver

The capital market regulator, the Securities and Exchange Board of India (SEBI) has proposed a significant change for the valuation of gold and silver Exchange Traded Funds (ETFs). The regulator intends to shift the valuation benchmark from international bullion prices to domestic spot prices.

Current Practice: Global Prices with Complex Adjustments

At present, fund houses use the London Bullion Market Association (LBMA) AM fixing price—denominated in US dollars—as the base for valuing gold and silver ETFs. This price is converted into Indian rupees, with additional adjustments made for customs duties, local taxes, and domestic market premiums or discounts.

This layered approach varies between Asset Management Companies (AMCs), as each may apply different benchmarks and adjust prices at different frequencies. The end result is inconsistent valuation of the same physical asset across different ETFs.

Proposed Shift to Indian Spot Prices

SEBI now wants ETFs to directly adopt domestic spot prices published by Indian commodity exchanges. These prices are derived from real-time polling of importers, traders, and other market participants, reflecting local demand and supply conditions more accurately.

This change would eliminate the need for fund managers to manually convert and adjust the international price, leading to a more streamlined and transparent valuation process.

Benefits of the New Approach

If implemented, the move would:

• Enhance uniformity across all ETFs by using a standard domestic benchmark.
• Increase transparency by aligning valuations with real market conditions in India.
• Simplify operations for fund houses, reducing reliance on international pricing and manual adjustments.
• Align valuation practices with those already used in commodity derivatives, which are based on domestic exchange prices.

Also Read: SEBI Launches Settlement Scheme for Expired VCFs: Starting from July 21

Ensuring Transparency in Spot Price Polling

SEBI is also keen on maintaining integrity in the price discovery process. Commodity exchanges will be required to:

• Clearly disclose their price polling methodologies.
• Provide details on participating entities and how data is processed.
• Adhere to rigorous governance norms to prevent manipulation.

To ensure stakeholder engagement, SEBI has invited public comments on the proposed changes. Investors, fund houses, and other market participants can share their feedback online via the SEBI website by August 6. This regulatory shift, if adopted, will have a direct impact on investors in gold and silver ETFs. The use of consistent, market-aligned valuation methods is expected to improve investor confidence and promote fairness across the mutual fund industry.

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.

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