Sebi Updates Valuation Standards for Gold and Silver in Mutual Funds
Capital markets regulator Securities and Exchange Board of India (Sebi) has announced a significant update to the valuation methodology for physical gold and silver held by mutual fund schemes. Starting April 1, 2026, mutual funds will be required to use polled spot prices from recognized stock exchanges to determine the value of these precious metals. This change aims to enhance transparency and ensure that valuations reflect domestic market conditions more accurately.
Transition to Domestic Spot Prices
Currently, mutual funds that manage gold and silver exchange-traded funds (ETFs) base their valuations on the AM fixing prices from the London Bullion Market Association (LBMA). These prices are then adjusted for various factors, including currency conversion, transportation costs, customs duties, taxes, and other levies to arrive at domestic valuations. Under the new regulations, the spot prices used for settling physically delivered bullion derivatives contracts on Indian stock exchanges will replace the LBMA benchmark. This shift is expected to promote uniformity and transparency across mutual fund schemes, aligning with the Sebi (Mutual Funds) Regulations, 2026. The Association of Mutual Funds in India (Amfi), in collaboration with Sebi, will develop a uniform policy to implement this revised valuation methodology.
Comprehensive Reforms in Mutual Funds
This revision is part of a broader initiative by Sebi to overhaul the mutual fund framework. Alongside the new valuation rules, Sebi has introduced a revamped classification structure for mutual fund schemes. These schemes will now be categorized into five main types: equity, debt, hybrid, life cycle, and other schemes, including Fund of Funds (FoFs) and passive schemes like Index Funds or ETFs. To enhance clarity for investors, Sebi has mandated that the name of each scheme must correspond with its category, ensuring that schemes remain “true to-label.” Additionally, the use of terms that emphasize only the return aspect of the scheme in its name is prohibited.
Changes to Scheme Categories and Investor Protection
Sebi has also decided to discontinue the Solution Oriented Schemes category immediately. Existing schemes within this category will cease accepting new subscriptions and will merge with similar schemes, pending prior approval from Sebi. Furthermore, Sebi has introduced Life Cycle Funds as open-ended schemes with a predetermined maturity and a glide path strategy for goal-based investing. These funds will gradually reduce equity exposure while increasing debt allocation as they near maturity.
In an effort to enhance transparency, Sebi has tightened portfolio overlap disclosures. Mutual funds will now be required to publish category-wise overlap levels monthly on their websites, calculated at the ISIN level. All existing schemes must comply with the new framework within six months of the circular’s issuance. Through these changes, Sebi aims to bolster transparency, standardization, and investor protection within the mutual fund industry.
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