The capital market regulator has proposed to amend the norms which govern how the mutual fund industry conducts the valuation of the physical gold and silver held by Exchange Traded Funds (ETFs). Presently the valuation of gold and silver held by ETFs is done on the basis of international prices. However the new system seeks to conduct the valuation on the basis of polled spot prices. Sebi has invited comments from the public regarding the proposals to be submitted by August 6, 2025.
How Are Gold and Silver Held By ETFs Valued Currently
The valuation of gold and silver is conducted in accordance with the SEBI (Mutual Funds) Regulations, 1996 (MF Regulations). As per the regulations, gold held by gold ETF schemes is valued on the basis of the fixing price of the yellow metal of 995.0 parts per thousand
fineness on the London Bullion Market Association (LBMA). Notably, this price is calculated in US dollars per troy ounce. A similar process is followed for the valuation of silver held by ETFs as well.
The LBMA price is then adjusted to metric measure, and Indian rupees, customs duty, and other applicable taxes and levies are also added to the price. The price is then adjusted in accordance with Indian bullion prices, which can be either at a premium or a discount to the LBMA prices. On the other hand, Exchange Traded Commodity Derivatives (ETCDs) of gold and silver held by mutual fund schemes are valued on the basis of the closing price of Futures.
Sebi’s Proposal For Valuing Gold and Silver
The market regulator has proposed that in order to standardise the valuation process for ETCDs and ETFs the polled spot price determined by domestic exchanges should be used to value gold and silver. The proposal also seeks to increase consistency and eliminate discrepancies in the valuation process. The market regulator also proposed that the methodology of conducting the polling and the policies used for polling should be made publicly available.
According to the Sebi, under the current system, prices are polled from a panel that includes representatives such as importers, exporters, traders, processors, and commission agents. These prices are then published by commodity exchanges. Once the polling is over, these prices are entered in a system, which computes the spot price for the day. After the price is computed, the final spot price is published on the exchange’s websites.
Why Did Sebi Propose The New Norms
The market regulator highlighted in its working paper that sometimes different Asset Management Companies use different sources to adjust gold and silver prices by applying a premium or discount. This, in turn, leads to discrepancies in the way in which the valuation is conducted. The market watchdog also cited the risk of AMCs applying premiums and discounts at irregular frequencies, such as daily or on alternate days, which can further add to the discrepancies. Ultimately, the difference in valuation leads to variation in the performance of the ETFs of different AMCs.
The proposed change is expected to minimise the scope of subjective adjustment of the premium or discount. Additionally, since commodity exchanges have to comply with transparency requirements and Sebi norms, using the spot price determined by them is expected to lead to a valuation which is reflective of the domestic market conditions.
