Valuation of physical Gold and Silver held by mutual fund schemes

Valuation of physical Gold and Silver held by mutual fund schemes

1. Existing Valuation Practice

Under the earlier regulatory framework, physical gold and silver held by Gold and Silver Exchange Traded Funds (ETFs) were valued using the AM fixing price published by the London Bullion Market Association (LBMA).

To determine the final domestic valuation, the following adjustments were applied:

• Conversion from international metric standards to domestic units
• Currency conversion into Indian Rupees
• Addition of transportation and logistics expenses
• Inclusion of customs duty
• Adjustment for applicable taxes and statutory levies
• Consideration of notional premium or discount

This method ensured international price linkage but required multiple adjustments to reflect domestic market realities.

2. Need for Reform in Valuation Methodology

Following deliberations within the Mutual Fund Advisory Committee (MFAC), stakeholder consultations, and public discussions, it was considered appropriate to align valuation practices more closely with domestic market conditions.

It was observed that:

• Recognized stock exchanges in India publish polled spot prices for gold and silver.
• These exchanges operate under stringent transparency and compliance standards.
• Using exchange-published spot prices would promote consistency and uniformity across mutual fund schemes.
• Domestic spot prices better capture real-time Indian market dynamics.

Accordingly, a shift in valuation methodology was proposed.

3. Regulatory Change Effective April 1, 2026

The SEBI (Mutual Funds) Regulations, 2026, notified on January 14, 2026, will come into effect from April 1, 2026.

In terms of Regulation 22(9) and Regulation 63(9), read with the valuation principles prescribed in the Seventh Schedule of the said regulations:

• Mutual funds shall value physical gold and silver using the polled spot prices published by recognized stock exchanges.
• These prices must be those used for settlement of physically delivered gold and silver derivative contracts.
• The spot polling process must comply with the guidelines prescribed by SEBI from time to time.

This amendment replaces reliance on international LBMA prices for valuation purposes.

4. Uniform Policy Framework

To ensure consistency in implementation, AMFI, in consultation with SEBI, will prescribe a standardized policy governing:

• Selection of exchanges
• Method of adopting spot prices
• Compliance and operational aspects

This will ensure harmonized valuation practices across the mutual fund industry.

5. Regulatory Authority

This directive has been issued under the powers vested in SEBI under Section 11(1) of the Securities and Exchange Board of India Act, along with the relevant provisions governing mutual funds.

The objective of the change is to:

• Protect investor interests
• Enhance transparency
• Promote fair valuation practices
• Strengthen the integrity of the securities market

Practical Impact for Investors

From April 1, 2026:

• NAV of Gold and Silver ETFs will reflect Indian spot market conditions more directly.
• Valuation adjustments relating to international conversion may reduce.
• Greater uniformity across schemes is expected.

Overall, the reform aims to make precious metal fund valuations more transparent, consistent, and domestically aligned.

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