Increased volatility in gold and silver prices, along with operational challenges in setting the base price of exchange-traded funds (ETFs), has prompted the Securities and Exchange Board of India (SEBI) to review the current price band framework for ETFs. The regulator has suggested a comprehensive overhaul of the pricing system to lessen the gap between ETF market prices and the value of their underlying assets.
SEBI has released a seven-page consultation paper titled “Consultation Paper on Review of Provisions Related to Base Price and Price Bands for ETFs”. In this paper, SEBI proposes changes to the rules that determine how the base price of ETFs is set and how price bands are applied, including for gold and silver ETFs.
The paper analyzes the current method for calculating base prices and evaluates how price bands are implemented. It also seeks input from stakeholders on the proposed changes. In the consultation paper issued on February 13, 2026, SEBI proposed replacing the existing T-2–based pricing system with a more current benchmark. This adjustment aims to remove the two-day delay in price discovery and make price bands more responsive to real-time market fluctuations. Public comments on the proposals are invited until March 6, 2026.
What is ETF?
An ETF is a type of mutual fund that tracks a specific index by investing in the same securities and in the same proportions as the index. Its units are listed on a stock exchange and can be bought and sold just like shares. Gold ETFs mainly invest in gold or gold-related assets, while Silver ETFs focus on silver or silver-linked assets. Since ETFs trade like regular shares, they are subject to the stock exchange’s price limits. Currently, most securities in the rolling settlement segment can fluctuate up to 20% in a single day, except those with derivative contracts.
The base price is the starting reference price for ETFs when trading begins on the stock exchange. It is important because it helps determine how the ETF’s price moves throughout the day and supports the price discovery process. There are no special price band rules for ETFs issued by SEBI. Instead, stock exchanges follow the normal price band system. Usually, ETFs are allowed to move up or down by 20% from their base price.
However, Overnight ETFs that invest only in TREP (Triparty Repo) have a tighter 5% limit on either side. For shares and indices, the previous day’s (T-1) closing price or Net Asset Value (NAV) is used to fix the price band. But for ETFs, the base price is set to the NAV from two days earlier (T-2). This means there is a one-day delay in the reference price used to set the price limits.
SEBI’s Reform Push: Why and What?
The SEBI has proposed changes to the way ETFs are priced in India. Currently, stock exchanges use the NAV from two trading days earlier (T-2) to set the base price for applying daily price bands to ETFs. SEBI believes this system causes delays and does not accurately reflect current market conditions. NAV represents the per-unit value of a mutual fund or ETF. It is calculated by taking the total value of the fund’s underlying assets, subtracting expenses, and dividing the result by the number of units outstanding.
Unlike stocks, where the previous day’s closing price (T-1) is used as the base for price limits, ETFs currently rely on NAV data that is already two days old. This creates a mismatch between ETF prices and the real-time value of their underlying assets.
To correct this lag, SEBI has suggested that exchanges should shift to more recent data. For deciding the base price for the next trading day, SEBI has proposed three possible reference points:
- The ETF’s closing market price on T-1 is calculated as the weighted average traded price during the last 30 minutes of trading.
- The average indicative NAV (iNAV) during the last 30 minutes of T-1.
- The closing NAV of T-1, if it is available in time.
By using T-1 data rather than T-2, SEBI aims to ensure ETF price bands are based on more up-to-date information. This is expected to reduce the gap between ETF market prices and their indicative NAV, improve price discovery, and minimise arbitrage opportunities. SEBI has also highlighted operational risks in the current system. Corporate actions such as bonuses and dividends that become effective on T-1 are manually adjusted in the T-2 NAV when determining the base price. This manual process increases the possibility of errors or omissions. Moving to a T-1-based system would reduce such risks and improve accuracy. In addition to revising the reference price, SEBI has proposed changes to the existing price band structure.
Currently, most ETFs are allowed to move up or down by 20% in a single trading session, while overnight or TREPs-based ETFs have a tighter limit of 5%. Price bands are designed to prevent extreme volatility by restricting how much a security’s price can fluctuate in a day. After studying data from 1 April 2025 to 31 December 2025, SEBI observed that in more than 99.8% of equity and debt ETFs, daily price movements stayed within 10%. Similarly, over 98% of gold and silver ETFs saw daily changes of 9% or less, while overnight ETFs moved between -5% and +5%. Based on this analysis, SEBI concluded that the current 20% price band may be unnecessarily wide for most ETFs.
SEBI has therefore suggested a more structured and volatility-sensitive approach:
- Equity and Debt ETFs: An initial price band of ±10%, which may be extended up to ±20% during the day after a cooling-off period.
- Commodity (Gold and Silver) ETFs: An initial band of ±6%, with the possibility of gradual expansion depending on market movements and cooling-off intervals.
- Overnight/TREPs ETFs: The existing ±5% band will continue.
Commodity ETFs, particularly those linked to gold and silver, present special challenges. Gold and silver are traded globally, and their prices fluctuate throughout the day and night in international markets. However, these ETFs trade only during Indian market hours, from 9:15 a.m. to 3:30 p.m. During periods of high volatility, such as January, when gold and silver prices saw sharp movements, the existing T-2-based pricing system and fixed price bands proved inadequate at keeping ETF prices aligned with their underlying assets.
To address this issue, SEBI has proposed linking the price bands of gold and silver ETFs more closely with the daily price limits applicable to their corresponding derivative contracts. It has also suggested introducing a separate pre-open session for commodity ETFs to help discover a fair price before regular trading begins. Additionally, SEBI has sought feedback on whether the current 20% upper cap for gold and silver ETFs should be removed, so that their limits mirror those in the derivatives market.
Derived Conclusions
The base price should be decided using a “waterfall” method. This means using the previous day’s closing NAV (T-1 NAV), as it provides the most accurate value. If that is not available, the previous day’s closing market price can be used instead. The iNAV is only an indicative figure and may not always be completely accurate. So, the way NAV and iNAV are calculated—especially for commodity ETFs—should be clearly defined and standardised, as different asset management companies may currently follow different methods.
For retail investors, these changes are likely to make ETF prices more accurate. Changing the price bands, particularly for commodity ETFs, will help trading limits better reflect real market volatility. On normal days, investors may not notice much difference. But during periods of sharp price movements, the new system will ensure trading limits stay up to date and reflect current market conditions. If these changes are implemented, the gap between ETF prices and the value of their underlying assets may be reduced. It could also prevent unusually large price swings caused by outdated reference prices.
The proposal is expected to improve transparency and reduce the need for manual NAV adjustments, thereby lowering operational risks. A more responsive pricing system will also allow ETFs—especially gold and silver ETFs—to react more quickly to changes in global commodity prices. Importantly, these changes do not affect what the ETF invests in or how it tracks its benchmark. They only change how ETF prices behave during volatile market conditions.
Overall, the regulator wants to reduce pricing distortions caused by outdated reference values and handle extreme market movements in a more orderly way. For gold and silver ETFs, where global prices often change overnight, the new system could better align Indian market prices with international trends.
SEBI’s objective is to modernise the ETF pricing framework to better reflect real-time market movements, reduce operational risks, and ensure closer alignment between ETF prices and the value of their underlying assets. These changes are particularly important as ETFs, especially gold and silver ETFs, have grown significantly in recent years, making an efficient and reliable pricing mechanism essential for maintaining investor confidence.
