The Securities and Exchange Board of India (SEBI) has proposed a new set of changes for the valuation of the underlying physical Gold and silver held by the commodity ETFs. The proposal is open for public comments now and will close on 6 August 2025. The proposed SEBI’s valuation methods are for incorporating the demotic market sentiments and realities, as the present valuation methodology relies heavily on international prices.  

Current Vs. Proposed Valuation Method

The present benchmark that the asset management companies use for the valuation of gold and silver for the ETFs is the London Bullion Market Association’s (LBMA) price, which is in US dollars. This price is converted to Indian currency after adjusting for multiple factors such as local taxes, customs duties, variable premiums, or discounts, and others. These adjustments are made to incorporate the Indian market conditions in the valuation process. However, this complex method of multiple adjustments leads to a lack of uniformity across the mutual fund houses. 

This is why SEBI has proposed the use of spot prices of gold and silver available on the Indian commodity exchange like MCX, as these prices will easily incorporate the domestic market conditions and be based on real-time demand and supply of the assets in the economy. The commodity exchanges poll the spot prices of these commodities usually every day, from different importers, traders, and Jewellers, and thus are more realistic in the domestic scenario. 

Is this new valuation method justifiable? 

According to Surendra Mehta, the National Secretary at the India Bullion and Jewellers Association (IBJA), this proposed methodology may create a huge gap between the domestic spot prices of gold and silver with the international prices. The reason is the timing of the commodity exchange declaring the spot prices, which is at 4.30 p.m. daily, while these commodities are traded in the international market around the clock, as international commodity markets remain open for 23 hours a day. Thus, Mr. Mehta suggests sticking to the current gold and silver ETF valuation based on LBMA prices. 

So, it will be interesting to see whether SEBI goes ahead with the new valuation strategy that it has proposed or sticks to the current methodology. 

Source: Mint

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