India’s Securities and Exchange Board of India (Sebi) has announced a significant revision to the valuation methodology for physical gold and silver held by mutual fund schemes. The change mandates the use of polled spot prices published by recognized stock exchanges, replacing the current benchmark-linked approach based on London Bullion Market Association (LBMA) prices. The new rules will take effect from April 1, 2026, according to a circular issued by Sebi.

Shift from International to Domestic Benchmark

Previously, gold and silver exchange-traded funds (ETFs) valued their holdings using AM fixing prices from the LBMA. These prices were adjusted for currency conversion, transportation costs, customs duty, taxes, and other levies to determine domestic prices. The new approach aims to align valuations more closely with local market conditions and enhance transparency.

According to the Sebi circular, mutual funds will now use the polled spot prices published by recognized stock exchanges. These prices are currently used for the settlement of physically delivered bullion derivatives contracts. This change is intended to create a more uniform valuation method across the mutual fund industry.

“It has been decided that with effect from April 01, 2026, the mutual funds shall value physical gold and silver by using the polled spot prices published by the recognised stock exchanges which are used for settlement of physically delivered gold and silver derivatives contracts,” Sebi stated in the circular.

Industry Consultation and Implementation

The mutual fund industry body, Association of Mutual Funds in India (Amfi), will work with Sebi to develop a uniform policy for implementing the new valuation framework. This collaboration is expected to streamline the transition and ensure compliance across the sector.

The move aligns with the Sebi (Mutual Funds) Regulations, 2026, which emphasize the need for valuations that better reflect domestic market conditions. By adopting a more localized pricing mechanism, the regulator aims to reduce discrepancies and provide investors with a clearer picture of the true value of their investments in gold and silver.

Industry experts suggest that the new valuation method could lead to more accurate pricing of gold and silver ETFs, potentially affecting their performance relative to international benchmarks. This could have implications for investors who rely on these funds for diversification or inflation hedging.

Impact on Investors and Market Transparency

For ordinary investors, the shift in valuation methodology could mean more consistent pricing of gold and silver holdings in mutual funds. This is particularly important for retail investors who may not have the resources to monitor international benchmarks closely. By using domestic spot prices, the new approach is expected to reduce the complexity of valuation and make it more transparent.

Analysts have noted that the change may also impact the performance of gold and silver ETFs, as they will now be priced based on local market conditions rather than international benchmarks. This could lead to variations in returns compared to funds operating under the previous system.

According to a recent report by financial analysts, the transition could result in a 2-3% difference in valuation for gold and silver holdings, depending on the timing of the switch and the prevailing market conditions. However, the exact impact will depend on how the new methodology is implemented and how the market reacts to it.

“This change will bring greater alignment with the domestic market, ensuring that valuations are more reflective of local conditions,” said a senior financial analyst at a leading investment firm. “It’s a positive step for transparency and uniformity in the mutual fund industry.”

With the new rules set to take effect in less than two years, mutual fund houses and asset management companies are expected to begin preparing for the transition. This includes updating their valuation models and communicating the changes to investors.

As of now, the mutual fund industry has not expressed any major concerns about the proposed changes. However, industry representatives have called for clarity on the exact parameters of the new valuation methodology to ensure a smooth implementation.