Gold and silver ETFs to use domestic spot prices from April 1: Sebi

Securities and Exchange Board of India (Sebi) issued a circular, which directed fund houses to use the polled spot price published by a recognised domestic exchange instead of the prices of the London Bullion Market Association. 

“Pursuant to discussions in the Mutual Fund Advisory Committee (MFAC), followed by public consultation and engagement with stakeholders, it was deliberated that polled spot prices published by recognised stock exchanges may be used for valuing gold and silver held by mutual fund schemes. Since stock exchanges operate under regulatory oversight with transparency and compliance requirements, using their published spot prices would make valuations more reflective of domestic market conditions and bring greater uniformity to valuation practices,” the circular stated. 

As per the extant regulatory framework, physical gold and silver held by Gold and Silver Exchange Traded Funds (ETFs) are valued using the AM fixing prices of the London Bullion Market Association (LBMA). The final valuation is arrived at after adjusting the LBMA prices for metric and currency conversions, transportation costs, customs duty, applicable taxes and levies, and factoring in any notional premium or discount to determine the domestic valuation.

Now, mutual funds shall value physical gold and silver using the polled spot prices published by recognised stock exchanges that are used for settlement of physically delivered gold and silver derivatives contracts.

The regulator also noted that it will consult with AMFI to prescribe a uniform policy in this regard. “The spot polling mechanism shall comply with the spot polling guidelines as specified by SEBI from time to time,” the note read. 

What do fund houses think about this move?

Elaborating on the news, Niranjan Awasthi, Senior Vice President at Edelweiss Mutual Fund,  took to X (formerly Twitter), saying that this move will ensure uniform valuation across ETFs and aligns pricing more closely with actual domestic market prices, moving towards greater accuracy.

“Another important circular from SEBI on how gold and silver will be valued in ETFs. 

Till date, ETFs used London Bullion Market Association (LBMA) gold and silver prices converted into domestic prices after adjusting for currency and import duties. These often differed from actual Indian market prices due to local premiums or discounts. Some ETFs use this to account for this difference, some didn’t. 

Now, valuation of 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) and some others. 

This will ensure uniform valuation across ETFs and aligns pricing more closely with actual domestic market prices. This is a strong step towards greater accuracy. ETF NAV returns for all ETFs will now be closer to each other, subject to TD,” the post read.