Sebi MF rules: Domestic spot pricing of metals to improve NAV accuracy in gold and silver ETFs, say experts

SEBI’s latest revision of mutual fund valuation and investment norms marks a structural shift in how gold and silver exposure is integrated and priced within fund portfolios. While the move to allow limited allocation to precious metals in equity, hybrid and lifecycle schemes expands diversification tools, the more consequential reform lies in mandating domestic spot price–based valuation for gold and silver ETFs.

Under the earlier framework, gold and silver ETFs primarily relied on London Bullion Market Association (LBMA) benchmark prices, which were converted into rupee terms after adjusting for currency movements and applicable import duties. However, these converted prices did not always reflect prevailing Indian market realities. Local premiums, discounts, logistics costs and supply-demand imbalances often led to divergences between international benchmarks and actual domestic bullion prices. Moreover, treatment of such deviations was not uniform across ETFs, resulting in valuation inconsistencies.

SEBI’s circular addresses this structural gap. Going forward, valuation of the underlying gold and silver in ETFs will be based on the polled domestic spot price published by a recognised Indian exchange, currently the Multi Commodity Exchange of India (MCX).

“Another important circular from SEBI clarifies how gold and silver will be valued in ETFs. Until now, ETFs largely relied on London Bullion Market Association (LBMA) prices converted into domestic terms after adjusting for currency movements and import duties. These reference prices often differed from actual Indian market prices due to local premiums or discounts, and treatment of such differences was not uniform across funds. Now, valuation of the underlying gold and silver in ETFs will be based on the polled spot price published by a recognised domestic exchange, currently provided by the Multi Commodity Exchange of India (MCX). This will ensure uniform valuation across ETFs and align pricing more closely with actual domestic market prices. It marks a strong step toward greater accuracy, and NAV returns across ETFs are expected to move closer to each other, subject to tracking differences,” Niranjan Avasthi, Senior Vice President, Edelweiss Mutual Fund, said.

Why this is so significant for investors

The implications of this transition are significant.

First, it improves valuation accuracy. By anchoring NAV calculations to domestic spot prices, ETF valuations will better reflect the true replacement cost of acquiring or liquidating equivalent quality bullion in India. This reduces distortions caused by international-to-domestic price translation mechanisms.

Second, it enhances uniformity across funds. Under the previous system, differences in how ETFs adjusted for premiums or discounts could lead to variations in NAV behaviour. With a common domestic reference price, dispersion in returns attributable purely to valuation methodology is expected to narrow. While tracking difference will continue due to expense ratios and operational factors, NAV movements across ETFs are likely to converge more closely.

Third, it reduces arbitrage inefficiencies. When NAVs are misaligned with actual domestic spot prices, price discovery in the secondary market can become less efficient. Aligning ETF valuation with Indian exchange-traded spot prices strengthens transparency and improves pricing integrity.

Fourth, it boosts investor confidence. Retail investors increasingly use gold and silver ETFs as substitutes for physical bullion. Ensuring that NAVs mirror domestic market conditions enhances credibility and simplifies performance comparison with MCX price trends.

Investment expert Rakesh Bansal said: “India’s market watchdog, SEBI, has given the green light for equity mutual fund schemes to put money into gold and silver.  This means these funds can now hold up to 35% in gold and silver assets, like ETFs or derivatives. The change helps funds spread risks and grab new chances in precious metals.  SEBI also brought in “Life Cycle” funds that adjust investments as you age. Plus, from April 2026, funds will use local spot prices to value gold and silver, making things fairer.  This could boost India’s mutual fund world, worth over $385 billion.”  

Beyond valuation reform, SEBI has also permitted equity schemes to allocate a residual portion to gold and silver, and hybrid schemes to invest in gold and silver ETFs. Lifecycle funds may invest up to 10% in gold and silver ETFs or exchange-traded commodity derivatives. Market experts said that over long investment horizons, such allocations can act as natural hedges against equity volatility, inflation cycles and currency risks.

However, the cornerstone of the reform remains the pricing architecture. Asset allocation flexibility improves portfolio construction, but accurate and standardised valuation strengthens the foundation of the product itself. By transitioning from internationally referenced converted benchmarks to domestic polled spot prices, SEBI has reinforced the structural integrity of gold and silver ETFs.

Historical evidence underscores why this matters. During periods of market stress, gold has demonstrated relative resilience compared to risk assets, while silver has benefited from both industrial demand and constrained supply dynamics. For such assets to function effectively as hedges within mutual fund portfolios, valuation transparency is critical.

With this framework now in place, market experts said investors can expect more precise NAV reflection, tighter return convergence across ETFs, and improved confidence in precious metal–linked mutual fund products.