Currently mutual fund houses managing gold and silver based ETFs use London Bullion Market Association (LBMA) price in US dollars as the benchmark, according to a consultation paper by Sebi.
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Further, customs duty and other applicable taxes and levies are also factored in for arriving at the final valuation. The price is further adjusted to the Indian bullion prices, which are often either at a premium or discount to the LBMA prices based on the domestic demand and supply.
The fund houses managing gold and silver ETFs currently face the challenge of duplication of effort for valuing physical gold/ silver held by mutual fund schemes. Presently, different AMCs use different sources of domestic benchmark to apply necessary premium/ discount, which leads to non- uniformity of the valuation practice for gold and silver across the MF industry. Further, in the absence of any regulatory direction, AMCs use their discretion to apply premium/ discount resulting in differences in valuation of gold/ silver.
While the physical gold/silver held by gold and silver ETFs are valued as per the LBMA process, the Exchange Traded Commodity Derivatives (ETCDs) on gold/silver held by MF schemes are valued as per the closing price of Futures in the domestic commodity exchange of the respective ETCDs.
Therefore, if any gold/silver ETF invests in both physical gold/ silver and ETCDs, two different sources are used for valuation of the same asset class in that scheme.
Sebi has now proposed consideration of spot price published by the domestic commodity exchanges for valuation of gold and silver and polling process for calculation of spot prices in case of both gold and silver.
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“SEBI’s proposal to shift gold and silver ETF valuation from LBMA-based pricing to domestic commodity exchange spot rates is a significant reform. It brings uniformity across AMCs, eliminates subjective premium/discount adjustments, and aligns NAVs more accurately with local demand-supply conditions. This simplifies operations, enhances transparency, and strengthens investor confidence,” said Akshat Garg, AVP, Choice Wealth.
“As India witnesses rising gold ETF inflows amid global uncertainty, this move could boost both retail and institutional participation. While care must be taken to ensure polling mechanisms remain robust and tamper-proof, this transition reflects SEBI’s broader goal of deepening trust in India’s capital and commodity markets through localized, data-driven frameworks,” Garg further added.