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Informist, Wednesday, Jul. 16, 2025

 

NEW DELHI – The Securities and Exchange Board of India has proposed a new valuation method for gold and silver exchange-traded funds in a consultation paper. The proposed change aims to bring uniformity in the valuation process for gold and silver throughout the mutual fund industry.

 

SEBI, in its paper, has proposed that asset management companies directly use the spot prices published by domestic commodity exchanges to value gold and silver, rather than relying on the London Bullion Market Association prices.

 

The spot prices, the paper has suggested, would be determined through a polling mechanism conducted by domestic regulated entities, which would be required to make the detailed polling mechanism publicly available. The polling mechanism, it said, would need to comply with SEBI's master circular for the commodity derivative segment, which includes provisions for transparency, the fair conduct of polling, and the disclosure of details.

 

The proposed change is likely to bring uniformity in the valuation practices across the mutual fund industry, the paper said, while reducing subjectivity. Using spot prices published by domestic commodity exchanges would reduce subjectivity in valuation and provide a more accurate reflection of domestic market conditions, it said. This would also ensure transparency in the valuation process, it added. 

 

The issue has been taken up due to various challenges faced by asset management companies in valuing gold and silver, it said. According to the SEBI paper, valuing physical gold/silver held by mutual fund schemes involves initiating with the London Bullion Market Association's fixing price and adjusting it to reflect domestic market prices, leading to duplication of effort.

 

The paper said different asset management companies use different sources of domestic benchmarks and apply premiums/discounts at varying frequencies, resulting in non-uniformity in valuation practices across the mutual fund industry. The use of discretion in applying premiums/discounts leads to differences in the valuation of gold/silver, causing variance in the performance of ETFs of different asset management companies based on the same commodity, the paper said.

 

Physical gold/silver is valued based on London Bullion Market Association prices, while exchange-traded commodity derivatives on gold/silver are valued at future prices on domestic exchanges, leading to inconsistent valuation sources for the same asset class within a scheme, the paper said.

 

SEBI has invited public comments on the proposals, asking stakeholders to submit their suggestions and comments by Aug. 6.  End

 

Reported by Pallavi Singhal

Edited by Saji George Titus

 

 

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