India’s market regulator, the Securities and Exchange Board of India (SEBI), has unveiled a proposal to review and revamp the pricing framework for exchange-traded funds (ETFs), aiming to address valuation mismatches and better align ETF prices with the value of their underlying assets.
Under the existing system, stock exchanges apply a fixed ±20 % price band around a base price derived from the Net Asset Value (NAV) of ETFs from two trading days prior (T-2).
This creates a one-day lag in reference pricing and can lead to divergence between ETF trading prices and the current value of underlying securities, especially during periods of volatility.
In a consultation paper, SEBI has proposed shifting to a T-1 based framework, where the base price could be determined using one of several reference points from the previous trading day, such as:
- the ETF’s closing traded price on T-1, weighted by average trade price over the last 30 minutes,
- the indicative NAV (iNAV) over the last 30 minutes of T-1, or
- the official closing NAV of T-1 (if available).
The regulator has also suggested moving away from a uniform price band, instead adopting dynamic or differentiated bands based on the type of ETF and its underlying asset volatility.
Early proposals include narrower initial bands (e.g., ±10 % for equity and debt ETFs and ±6 % for gold and silver ETFs) that can be flexed up incrementally during trading subject to cooling-off periods and liquidity conditions.
SEBI’s move comes amid growing concerns that the current pricing regime — with its lagging reference base and broad price bands — does not adequately reflect real-time market conditions and can result in excessive premium or discount pricing relative to underlying assets.
The regulator has invited public comments on the proposals until March 6, 2026, signaling that any final changes will be shaped by industry and investor feedback.
If implemented, the reforms could improve price discovery, reduce mispricing risks, and bring India’s ETF pricing mechanisms closer to global norms, potentially enhancing investor confidence in the rapidly expanding ETF segment.
India ka market regulator, Securities and Exchange Board of India (SEBI), ne Exchange Traded Funds (ETFs) ke liye base price aur price band mechanism ko review karne ka proposal diya hai.
Is step ka main objective hai ETF ke market price ko unke underlying assets ke Net Asset Value (NAV) ke saath zyada closely align karna.
Abhi ke framework mein ETF ka base price T-2 NAV (do din purana NAV) par based hota hai aur exchanges ±20% ka fixed price band apply karte hain. Lekin volatile market conditions mein yeh lag system kabhi-kabhi ETF ke trading price aur actual NAV ke beech gap create kar deta hai.
SEBI ne apne consultation paper mein suggest kiya hai ki base price ko T-1 (ek din purana data) par shift kiya ja sakta hai. Ismein base price calculate karne ke liye kuch options diye gaye hain, jaise:
- Pichle din ka closing traded price (last 30 minutes ke weighted average ke saath)
- Indicative NAV (iNAV) ka last 30 minutes ka average
- Official closing NAV (agar available ho)
Iske alawa regulator ne yeh bhi propose kiya hai ki uniform ±20% band ke bajay differentiated ya dynamic price bands rakhe ja sakte hain.
Example ke liye, equity aur debt ETFs ke liye narrower band (jaise ±10%) aur gold/silver ETFs ke liye aur tight band (jaise ±6%) consider kiya ja sakta hai, jo market volatility ke hisaab se adjust ho sake.
SEBI ka maanna hai ki naye changes se better price discovery, kam mispricing risk aur investor protection improve hoga. ETF market India mein rapidly grow kar raha hai, aur regulator chahata hai ki pricing mechanism global best practices ke closer ho.
SEBI ne industry aur public se feedback maanga hai, aur comments submit karne ki deadline March 2026 tak rakhi gayi hai. Final rules feedback ke basis par decide kiye jayenge.
Overall: Agar proposal implement hota hai, toh ETF investors ko zyada transparent aur accurate pricing mechanism mil sakta hai.