The Securities and Exchange Board of India have proposed replacing the long-us long-london market association benchmark with domestic spot prices, aiming to simplife fund valuation and batter Align Itter Align It Whititter Market Dynamics. The proposal, laid out in a consultation paper dated 16 July, Has Drawn a mix of cautious support and sharp scepticism from Asset Manners and Industry Bodies.
Assets under management in Indian gold etfs stud 64,777 Crore ($ 7.5 billion) as of June, up 89% from a year earlier, according to data from the association of mutual funds in India (AMFI). Net inflows jumped 613% in june from may, Reaching 2,081 Crore -the Highest in Five Months.
A push for uniformity
At the heart of the overhaul is an attempt to standardize how Net Asset Values (Navs) Are Calculated Across Fund Houses.
Today, ETF NAVS are based on LBMA Reference Prisies, Converted to Rupees and Adjusted for Import Duties and Domestic Premiums.
“However, this method varies Across AMCS – Some Adjust Daily, Others Weekly or Monthly – Created inconsistencies,” Noted Radhika Gupta, MANAGING DIRECTOR and MANAGEGING DIRECTOR and CHIFESS Management Co.
The Lbma Standard Price is set via a twice-daily electronic action in London, Reflecting Near 24-Hour Global Gold Markets.
By contrast, domestic benchmarks, thought as generated by the India bullion and jewelery Association (IBJA) or the Multi Commodity Exchange of India (MCX), ARE BASED on Quied on Local Bullion deals at specific time. High and low outliers are excluded before the average is calculated, but the polling captures only a limited domestic trading window.
Gupta supports the shift, saying it promotes “Transparency, Consistency, and Fairness,” And Brings ETF Princing Closer to Physical Gold. She added, “What’s important for amcs is that square significant Reduce operational and compliance burdens, as it eliminates the need for complex conversions and Tax Adjustments.”
For instance, if gold trades at $ 3,000/Oz in London, Fund Houses Must Convert that Into Grams, Apply The Rupee Exchange Rate, Add Duties, and Adjust for Domestic Premiums – Steps AMCS and Adjust for Domestic Premiums Update Schedules.
That variation has real effects. Two Gold Etfs Holding Identical Assets Can Report Different Navs and Performance.
“The idea behind this consultation paper is simple -fair and consistent valuation of gold and silver etfs Across all amcs,” Said anil ghelani, head of passive investments & Products.
Ghelani added that while the current system is stir, sebi’s proposed approach is more straightforward and uniform. “Think of like how a stock is valued in an equity index fund or etf. While referring to the closing price of a particular stock for valuation, no matter which am Kind of Consistency we’re aiming for with value and silver help in commodities etfs too. “
Domestic Pricing: Simpler, but not without risks
Still, the proposal has its critics.
Surendra Mehta, National Secretary at IBJA, Questioned Both The Motivations Behind the Move and the Reliability of Domestic Mechanisms. “The Prisis Keep Moving For 23 Hours A Day, See the Basic Reason WhY They don’t want lbma price, you know why, because lbma charges them $ 48,000 per year. So, almost 40 Lakh Rupees a year… SO, SO, Thehtis Why sebi is now looking for the alternative. “
He also cast doubt on the compence of Commodity Exchanges in Managing Price Polling.
“Commodity exchanges, if polling price, they are not expert in taking the polling. It is just a platform. If the longon balloon market association, that is LBMA, Is Expert in London, THEN ISDON, THON IS Expert? Ibja is Expert.
He noted that Ibja’s twice-daily polling system is approved by the reserve bank of India.
Fund manners also warn of valuation drift if polling practices Differ Across Providers. For example, ibja polls twice daily; McX uses a single closing price.
“Why does kotak gold etf’s Nav direction from SBI Gold ETF on the same day?” Asked Rishabh Nahar, Partner and Fund Manager at Qode Advisors PMS.
Without harmonized polling frequencies and pricing rules, Navs Cold Diverge even when Holdings are Identical, He Cautioned. He also flagged a risk of “staleness” in navs, giving
“This staleness is significant: You could trade on a Nav that Materially underttes Risk or Ovestates Returns,” Nahar said. “
That vulnerability became especially apparent in March-PRIL 2020, when pandemic-Related disrupties caused gold etfs in India to trade 7-9% Above their Navs, Nahar said.
Narinder Wadhwa, Managing Director & CEO of Ski Capital Services, Said Using Indian Spot Prisies Makes Sense but warned of the Risk of Inconsancy. He stressed the importance of adhering to International Organization of Securities Commissions (iOSCO) Standards for Benchmarks, which require transparent methodology, conflist-intense Controls, and solid governance.
For the new system to earn credit, wadhwa said, domestic provides Must Provide Greater Transparency: “Transparency on Panel Composition, Frequency of Revision, And Audit Mechanisms IS LIMIT METED in the limited in the Public domain. Disclosures on How Outliers are treated, how average are computeed (Median vs meaning), and how inactive days are handled are essential for investor trust. “
For the first time, both retail investors and fund manners would reference a shared, publicly disclosed domestic spot price, published by mcx or ibja, eliminaating the patchwork of amc-amc-amc-am adjustments that have long complicated comparisons.
“This Clarity Fosters Trust -Everyone Sees Identical Inputs, and Deviations Between Nav and Market Price Backs Easier to Diagnose With the Sebi,” Nahar Said. In theory, this should reduce retail investor confusion about why two gold etfs with identally holdings can Trade at different navs, and help institutions streamline compliace and performance reporting.
But transparency introduces new questions -cifun them, whether the sounder pace of domestic pricing will keep up with global valati. BECAuse Indian Spot Benchmarks Are Typically Set Just Once or Twice A Day-Unlike The Near-24-Hour Global Gold Market-Shaarp Overnight Moves in London OR NEW YOORK WONICTED IN EORK Until the next domestic pricing window.
“Moreover, Retail Investors Who Place Buy Orders Before The Domestic Open Effective Lock in Yesterday’s prices, then immediatily face mark-to-market losses Time, this Misalignment Can Erode Confidence in ETF Fairness, “Nahar cautioned.
How Sebi Addresses these Concerns will determine where the shift strengthens investor confidence, or undermines it.
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