SEBI's New Gold & Silver Valuation Framework: What it Really Means

SEBI issued a regulatory circular - Valuation of physical Gold and Silver held by mutual fund schemes dated 26 February 2026, changing the way physical gold and silver held by mutual fund schemes will be valued.

While at first glance this appears to be a technical accounting modification, the shift is actually structural in nature. It directly affects how Net Asset Value (NAV) of Gold ETFs, Silver ETFs, and related schemes will be calculated going forward.

The new rules will be effective from 1 April 2026.

This editorial breaks down the circular in simple but professional terms - what has changed, why it matters, and how it impacts investors.

1. What Exactly has SEBI Changed?

Earlier, mutual fund schemes holding physical gold or silver relied on international benchmark prices - typically global bullion rates - and then adjusted those prices for currency conversion, import duties, and local taxes to derive the valuation in Indian rupees.

Earlier, mutual fund houses determined valuation using the London Bullion Market Association (LBMA) AM fixing price and then converted that global price into an Indian value by applying currency conversion, metric adjustments, transportation costs, import duty, taxes and an assumed local premium or discount.

Under the new framework...

• Mutual funds must use domestic spot prices published by recognised Indian stock exchanges
• These spot prices must be those used for physically settled bullion derivative contracts
• A uniform valuation approach will be implemented across fund houses

In short, valuation is shifting from an international reference model to a domestic price discovery model.

2. Why Did SEBI Introduce This Change?

The earlier system was not technically wrong. However, it had limitations.

Gold prices in India are influenced by multiple domestic factors:

• Import duties
• Rupee-dollar exchange rate
• Local supply-demand dynamics
• Seasonal demand (weddings, festivals)
• Domestic premiums

Using international benchmarks and then adjusting them introduced estimation layers. Even small variations in assumptions could create minor differences in valuation across fund houses.

SEBI's objective appears to be:

• Increase valuation transparency
• Standardise pricing methodology
• Reduce inter-AMC discrepancies
• Strengthen domestic price discovery

By linking valuation directly to exchange-published Indian spot prices, NAV calculation becomes more straightforward and locally aligned.

3. What Will Change in NAV Calculation?

From April 2026 onward:

NAV of Gold and Silver ETFs will reflect the Indian exchange-published spot price rather than an adjusted global benchmark.

Old Approach

International bullion price ? Currency conversion ? Add import duty ? Adjust taxes ? Final valuation

New Approach

Domestic exchange spot price ? Direct valuation

The valuation chain becomes shorter and more transparent.

For investors, this does not change the units held or the investment strategy of the scheme. It changes only the pricing reference used to compute daily NAV.

4. Will Investors See an Immediate Impact?

In practical terms, there will be no sudden gain or loss purely because of the rule change.

However, investors may notice over time:

• Slight differences in NAV movement patterns
• Better alignment between ETF NAV and Indian bullion market trends
• Reduced variation between different Gold ETF NAVs

The change is more about improving accuracy and consistency rather than altering returns.

5. Broader Implications for the Mutual Fund Industry

Although the circular specifically addresses physical gold and silver valuation, its implications extend beyond commodity pricing.

A. Strengthening Domestic Financial Infrastructure

By mandating use of Indian exchange spot prices, SEBI reinforces domestic exchanges as primary centres for price discovery. This deepens India's commodity market ecosystem and reduces reliance on offshore benchmarks.

B. Standardisation Across Fund Houses

Under the earlier system, interpretation of adjustments could vary slightly between AMCs. A domestic exchange-based price reduces subjective adjustments and ensures uniformity.

C. Improved Comparability for Investors

Investors comparing two Gold ETFs will now be comparing schemes that are valued under an identical domestic pricing mechanism. This improves analytical clarity.

6. How Does This Fit into SEBI's Larger Regulatory Direction?

If we observe SEBI's recent regulatory actions, scheme categorisation, risk-o-meter enhancements, disclosure tightening, valuation rationalisation - a clear theme emerges:

• Greater transparency
• Reduced ambiguity
• Stronger investor protection

Gold and silver ETFs have seen growing investor participation in recent years, especially during periods of global uncertainty and currency volatility. As these products become mainstream allocation tools, valuation integrity becomes critical.

SEBI is proactively tightening that framework.

7. Impact on Different Types of Schemes

The circular is not limited only to pure Gold ETFs. Its scope extends to all mutual fund schemes that hold physical gold or silver in their portfolios.

This includes Silver ETFs, Fund of Funds investing in these ETFs, and hybrid or asset allocation schemes that maintain a small exposure to bullion as a diversification component.

For hybrid funds, the effect will be limited to more accurate pricing of the gold allocation portion, while for Gold and Silver ETFs where the underlying portfolio consists almost entirely of physical bullion the valuation methodology becomes central to daily NAV calculation.

8. Does This Affect Returns or Tracking Error?

The change does not directly impact investor returns since the underlying asset - gold or silver - remains the same. However, it can improve tracking behaviour.

Earlier, valuation based on adjusted global benchmarks could introduce minor deviations. By adopting a uniform domestic benchmark, one source of variation is removed, and NAV movements are expected to align more closely with Indian bullion price trends, improving tracking consistency rather than performance.

9. What Should Existing Investors Do?

Existing investors do not need to take any action. The circular does not affect units held, taxation, cost of acquisition, or investment objective.

Only the pricing reference used for NAV calculation changes. Investors should therefore avoid reacting to the regulation and continue making buy or sell decisions based on asset allocation and portfolio requirements rather than this operational change.

10. Relevance for New Investors

For new investors, the framework strengthens the transparency of gold and silver ETFs. Financial gold already offers benefits such as purity assurance, liquidity and ease of holding, and the new valuation method ensures the NAV reflects a regulated domestic market price.

This enhances confidence in gold ETFs as a diversification tool rather than merely a trading instrument.

Conclusion

This change by SEBI also highlights the increasing importance of India's commodity markets. Despite being a major gold consumer, financial product pricing historically relied on international benchmarks.

Using exchange-published domestic spot prices strengthens local price discovery, integrates commodity markets with the financial system and can improve long-term investor confidence in bullion-linked investment products.

In a market where gold increasingly plays a role in asset allocation strategies, such regulatory clarity enhances confidence in the product structure.

This is less about changing gold and more about refining how India prices it within its own financial system.

Invest wisely.

Happy investing.

Disclaimer: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, enlistment as IA with Exchange and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.