SEBI Plans to Switch
From Global to Local Prices
For Exchange Traded Funds (ETFs)
For Exchange Traded Funds (ETFs) SEBI Plans to Switch
From Global to Local Prices
1. Introduction
For many Indian investors, Exchange Traded Funds (ETFs) have become a popular way to invest in gold and silver without worrying about storage or safety. Like regular stocks, these funds trade on exchanges and reflect the market value of their underlying assets. Recently, on July 16, 2025, SEBI released a consultation paper proposing changes to the calculation method for the value of physical gold and silver held by ETFs. The aim is to bring consistency across the mutual fund industry and align valuations more closely with domestic market conditions. Public comments may be submitted by August 6, 2025.
2. Background
Currently, the valuation of physical gold and silver is based on prices published by the London Bullion Market Association (LBMA) in US dollars per troy ounce. These prices are then converted into Indian Rupees using standard conversion rates and the RBI’s reference exchange rate. After that, customs duty and applicable taxes are added to arrive at the final value.
On the other hand, when mutual funds invest in gold and silver through domestic commodity exchanges, their valuation is based on the closing price of domestic futures contracts.
This difference in valuation methods, international pricing for physical holdings versus domestic futures prices, creates inconsistency across the industry. To bring uniformity and avoid confusion, SEBI has proposed a review of the valuation methodology used for physical gold and silver held by ETFs.
3. What Are Exchange Traded Funds?
Exchange-Traded Funds (ETFs) are investment funds that track indices, such as the Sensex and Nifty. Unlike traditional mutual funds, ETFs trade like a common stock on stock exchanges and their prices fluctuate throughout the trading day. The trading value of an ETF depends on the net asset value (NAV) of the underlying assets. ETFs, generally offer higher daily liquidity and lower fees as compared to regular mutual fund schemes.
For example, imagine “ABC Gold ETF”, an exchange-traded fund listed on the Indian stock exchanges. If you buy units of ABC Gold ETF, your investment’s value will rise or fall with the daily price of gold in India. Instead of owning physical gold bars or coins, you hold units in the ETF that directly reflect the current market value of gold held by the fund. This provides investors with an easy and cost-effective way to gain exposure to gold prices, without worrying about storage or security.
4. SEBI’s Key Proposals
SEBI has proposed the following key proposals –
4.1. Shift to Domestic Spot Prices for ETF Valuation
Currently, ETFs value their gold and silver holdings using the LBMA price, which reflects international rates set in London. To make it usable in India, that price is converted into INR using the RBI reference rate, and then adjusted for customs duties and other taxes. This process is not only layered but also leaves room for inconsistency due to manual adjustments for premiums or discounts.
SEBI noted that domestic commodity exchanges follow its transparency requirements and compliance standards set by SEBI. Therefore, using spot prices published by these Indian exchanges would better reflect actual prices in the Indian market and help bring consistency across mutual funds.
To resolve the disconnect between current international-based valuation and domestic realities, SEBI has proposed that AMCs should shift from using LBMA prices to relying directly on spot prices published by domestic commodity exchanges for valuing gold and silver.
Illustration
Suppose, the LBMA gold price is USD 2,400 per ounce and the exchange rate is Rs 83/USD. This converts to Rs 1,99,200 (2400*83). After adding taxes and duties of Rs 700, the total price becomes Rs 1,99,900.
However, if the domestic spot price published by an Indian exchange is Rs 1,98,500, then the ETF’s NAV based on the LBMA price is Rs 1,400 higher than the actual Indian market price.
This difference creates inconsistency and can mislead investors. Shifting to domestic prices eliminates this gap, making ETF valuations more accurate and reflective of the Indian market conditions.
Comments
Switching to domestic spot prices for valuing gold and silver ETFs would streamline valuations by removing currency conversion and tax adjustments. Investors would get a clearer and more consistent view of their holdings, especially useful when global and local prices don’t match up.
4.2. Detailed Polling Mechanism Used for Determining Spot Prices Must Be Made Public
In India, domestic spot prices for gold and silver are arrived at through a polling process that involves a panel of participants from across the physical market. These include importers, exporters, traders, and commission agents, who submit their price quotes at fixed intervals during the day. Based on these submissions, commodity exchanges calculate and publish the official spot price.
To ensure accuracy and fairness, exchanges use established methods, such as the Trimmed Mean Methodology. In this approach, extreme prices that fall outside set limits are removed, and the average is then calculated using the remaining values. This helps in determining a price that accurately reflects market sentiment.
Once all participants have submitted their quotes, the system processes the data and computes the final spot price for the day. This price is then published on the exchange’s website for public access.
After polling, prices quoted by polling participants are entered in the system. The system then computes the spot price for the day. On completion of the polling process, the final spot price is disseminated through the exchange’s websites.
As the polled price for the spot market of commodities needs to be adequately transparent to provide the valuation of gold and silver, SEBI has now proposed that the detailed polling mechanism used by domestic regulated entities for determining spot prices, including the methodology of polling and the policies for the fair conduct of polling, etc., must be made publicly available.
Further, stock exchanges must have a well-documented policy for the spot price polling mechanism. They must display the spot price polling mechanism adopted for every contract and disclose details of individual spot price polling participants on their websites.
Additionally, the process must comply with the requirements outlined in SEBI’s Master Circular for the commodity derivatives segment. This includes conducting monthly reviews to identify participants who consistently submit unrealistic quotes, and providing a separate channel to receive feedback and complaints about the polling process.
Illustration
An Indian commodity exchange collects gold price quotes from trusted market participants like traders and jewellers. If an exchange receives gold price quotes ranging from Rs 5,799 to Rs 6,000 per gram, it removes the extreme values and calculates the average of the remaining quotes. Suppose the trimmed mean is Rs 5,835. This becomes the official price published for the day. SEBI now requires the entire process, from data collection to final pricing, to be transparent and publicly accessible.
Comments
Introducing transparency in the spot price polling mechanism will enhance the credibility of ETF valuations. By making the polling process public and verifiable, SEBI aims to ensure that spot prices accurately reflect Indian market conditions, thereby building investor trust.
5. Conclusion
SEBI’s proposal to shift the valuation of gold and silver ETFs to domestic spot prices is a positive step towards making the process more accurate and transparent. Using domestic spot prices and standardising the valuation process will help bring consistency across all mutual fund schemes. This move will also better reflect ETF valuations in line with actual market conditions in India, thereby improving investor confidence.
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