Context:
The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing a revised valuation methodology for physical gold and silver held by mutual funds through Exchange-Traded Funds (ETFs). The aim is to bring greater transparency, consistency, and alignment with Indian market realities.
Key Highlights of SEBI’s Proposal
Current Practice
- Mutual funds currently value gold and silver holdings based on London Bullion Market Association (LBMA) prices.
- These are international reference prices, adjusted for customs duties and local taxes to reflect the Indian context.
Proposed Changes
- SEBI suggests using spot prices published by domestic commodity exchanges (like MCX) for valuation.
- This change aims to:
- Align ETF NAVs with actual domestic market prices.
- Reduce mismatch caused by global benchmarks during volatile periods or in thin domestic trading sessions.
Impact on Asset Management Companies (AMCs)
- All mutual funds managing gold and silver ETFs would have to transition their NAV valuation process to this new benchmark.
- The change would apply to daily NAV disclosures and influence inflows/outflows depending on perceived pricing accuracy.
