SEC Proposes Exchange-Traded Funds (ETFs) Based on Domestic Gold and Silver Spotted Prices for Appraisal

In a significant move aimed at enhancing transparency and reducing discrepancies in the valuation of gold and silver Exchange Traded Funds (ETFs), the Securities and Exchange Board of India (SEBI) has proposed that AMCs use spot prices published by domestic commodity exchanges to value these ETFs.

The proposal, announced on July 16, 2025, is expected to bring greater uniformity and better alignment with domestic market conditions in the valuation process. Rishabh Nahar, Partner and Fund Manager at Qode Advisors, hailed the regulation as a win for transparency, reducing basis risk, and aligning valuations to prices Indians actually transact.

Currently, gold and silver held by ETFs are valued using London Bullion Market Association (LBMA) prices fixed in British pounds or US dollars, which represent international market prices. However, the use of these prices results in significant variation in valuation methodologies across different AMCs, causing inconsistencies in ETF performance and potential confusion for investors.

By embracing the domestic spot market, MFs will reflect real-time domestic demand and supply dynamics, enhancing price discovery and narrowing tracking error. Radhika Gupta, MD and CEO of Edelweiss MF, stated that this move closes the gap between retail investor prices at jewelry shops and ETF investment statements.

According to Gupta, the proposal will standardize practices across AMCs and offer investors more accurate, India-relevant Net Asset Values (NAVs). The change is also expected to pave the way for silver ETFs to thrive, providing investors with straightforward access to a metal with outsized upside potential.

In the absence of any regulatory direction, AMCs use their discretion to apply premium and discount, resulting in differences in valuation of gold and silver. These differences can lead to variance in the performance of the ETFs of different AMCs based on the same commodity.

SEBI's proposed change to use domestic spot prices directly, which are published daily by regulated domestic commodity exchanges and reflect real physical market transactions within India, will provide a uniform benchmark for valuation applicable across the mutual fund industry.

The change will eliminate the current subjective adjustments AMCs make, thus reducing the variation in ETF valuations and performance due to differing internal methodologies. It will also improve the reflectiveness of valuations to actual market prices in India, offering a more accurate assessment for investors.

Additionally, SEBI plans to make the entire spot price polling mechanism transparent by making the methodology, panel constituents, and policies publicly available, further reinforcing market confidence and standardization.

This move is expected to make the valuation of gold and silver ETFs more consistent, transparent, and reflective of the Indian market, ultimately benefiting investors by standardizing how mutual funds value physical gold and silver holdings.

[1] SEBI's proposal aims to ensure consistency and eliminate discrepancies in the valuation of gold and silver ETFs. [3] The rationale behind SEBI's proposal to use spot prices published by domestic commodity exchanges instead of the London Bullion Market Association (LBMA) prices for valuing gold and silver ETFs is primarily to bring greater uniformity and better alignment with domestic market conditions in the valuation process.

The proposed regulation by SEBI intends to standardize the valuation of gold and silver Exchange Traded Funds (ETFs), removing discrepancies in the process.
Rishabh Nahar, a Partner and Fund Manager at Qode Advisors, applauded the regulation, noting that it will reduce basis risk and align valuations to prices that Indians actually transact.
By using spot prices published by domestic commodity exchanges, mutual funds (MFs) will reflect real-time domestic demand and supply dynamics, promoting accurate price discovery.
The change in valuation methodology is also expected to close the gap between retail investor prices at jewelry shops and ETF investment statements.
The implementation of this proposal will make the valuation of gold and silver ETFs more consistent, transparent, and reflective of the Indian market, ultimately benefiting investors.

SEC Proposes Exchange-Traded Funds (ETFs) Based on Domestic Gold and Silver Spotted Prices for Appraisal