SEBI Mandates New Valuation Framework for Gold and Silver in Mutual Funds
In a significant regulatory overhaul, the Securities and Exchange Board of India (SEBI) has announced a comprehensive revision of the valuation methodology for physical gold and silver holdings within mutual fund schemes. The new framework, which will become effective from April 1, 2026, mandates that mutual funds must value these precious metals using polled spot prices published by recognized stock exchanges.
Shift from International Benchmarks to Domestic Spot Prices
Under the current system, gold and silver exchange-traded funds (ETFs) determine their valuations based on the AM fixing prices established by the London Bullion Market Association (LBMA). These international benchmarks are then adjusted for various factors including currency conversion rates, transportation expenses, customs duties, taxes, and other applicable levies to arrive at domestic valuations.
The revised norms represent a fundamental shift toward greater domestic market alignment. Mutual funds will now utilize the spot prices that are employed for settlement of physically delivered bullion derivatives contracts on Indian stock exchanges. This move completely replaces the previous benchmark-linked approach and aims to ensure that valuations more accurately reflect domestic market conditions while simultaneously promoting uniformity and transparency across all mutual fund schemes.
The Association of Mutual Funds in India (AMFI), in close consultation with SEBI, will be responsible for prescribing a uniform implementation policy for this revised valuation methodology. This collaborative approach ensures that all market participants adhere to consistent standards.
Part of Broader Mutual Fund Regulatory Reforms
This valuation revision forms part of SEBI's comprehensive overhaul of the mutual fund regulatory framework. In a separate circular issued on the same day, the regulator introduced a completely revamped classification structure for mutual fund schemes.
The new classification divides schemes into five broad categories: equity, debt, hybrid, life cycle, and other schemes, along with Fund of Funds (FoFs) and passive schemes such as Index Funds or ETFs. To enhance investor clarity and ensure scheme integrity, SEBI has mandated that scheme names must exactly match their designated categories.
"For easy identification by investors, in order to bring uniformity in names of schemes for a particular category across mutual funds and to ensure that schemes remain 'true to label', the scheme name shall be the same as the scheme category," SEBI stated in its circular.
The regulator has further directed that scheme names must not include "words/phrases that highlight/emphasize only the return aspect of the scheme." This measure aims to prevent misleading marketing practices and promote more responsible investment communication.
Additional Regulatory Changes and Implementation Timeline
SEBI has discontinued the Solution Oriented Schemes category with immediate effect. Existing schemes under this category will cease accepting fresh subscriptions and will eventually merge with similar schemes, subject to prior regulatory approval.
Among the new introductions are Life Cycle Funds, which will operate as open-ended schemes with predetermined maturity dates and glide path strategies specifically designed for goal-based investing. These funds will systematically reduce equity exposure while increasing debt allocation as they approach their maturity dates.
The regulator has also tightened portfolio overlap disclosure requirements. Mutual funds are now mandated to publish category-wise overlap levels every month on their official websites, with calculations performed at the ISIN level to ensure greater transparency and comparability.
All existing mutual fund schemes must comply with this comprehensive revised framework within six months of the circular's issuance date. With these simultaneous changes to precious metal valuation norms and the broader restructuring of scheme categories, SEBI aims to significantly enhance transparency, standardization, and investor protection throughout the mutual fund industry.
