SEBI Proposes Shift in Gold, Silver ETF Valuation Norms

Context

The Securities and Exchange Board of India (SEBI) has proposed replacing the London Bullion Market Association (LBMA) benchmark with domestic spot prices to calculate the Net Asset Value (NAV) of gold and silver Exchange-Traded Funds (ETFs).

Exchange-Traded Funds (ETFs)

Definition: ETFs are investment funds that hold a basket of assets (stocks, bonds, commodities, etc.) and are traded on stock exchanges like individual stocks.
Key Features:
- Real-time trading with fluctuating prices.
- Low expense ratios and brokerage fees.
- Diversified holdings reduce risk.
Structure & Regulation:
- Most ETFs are open-ended and regulated under the Investment Company Act, 1940 (in the U.S.).
- In India, ETFs are regulated by SEBI under mutual fund norms.
How They Work:
- Investors buy ETF shares, not the underlying assets directly.
- NAV is calculated throughout the trading day unlike mutual funds.
Types of ETFs:
- Passive ETFs: Track indices like S&P 500.
- Active ETFs: Actively managed; higher costs.
- Bond ETFs: Invest in govt. or corporate bonds.
- Sector ETFs: Track specific industries (e.g., tech, energy).
- Commodity ETFs: Track assets like gold, oil.
- Currency ETFs: Hedge/track currency movements.
- Bitcoin & Ethereum ETFs: SEC-approved, track crypto prices.
- Inverse & Leveraged ETFs: Use derivatives to short/boost returns.