Key facts
- SEBI is replacing fixed ETF price bands with dynamic ones.
- The base price calculation for ETFs is being changed.
- New rules take effect September 1, 2026.
- Equity and debt ETFs will have an initial 10% dynamic price band, expandable to 20%.
- Gold and silver ETFs will have an initial 6% dynamic price band, expandable in 3% increments.
- A pre-open call auction will be introduced for gold and silver ETFs.
India's Securities and Exchange Board of India (SEBI) has introduced a new framework for exchange-traded funds (ETFs), aiming to enhance market efficiency and price discovery. The changes, effective from September 1, 2025, replace the existing fixed price band mechanism with dynamic price bands for most ETF categories and alter the methodology for calculating their base price.
Under the revised rules, equity and debt ETFs, excluding overnight and liquid options, will initially have a 10% dynamic price band, which can be expanded up to 20%. For commodity ETFs tracking gold and silver, the initial price band will be 6%, with potential expansions in 3% increments based on market conditions and international price movements. This replaces the current fixed 20% band, which SEBI noted creates challenges due to a one-day lag in price discovery and does not adequately reflect underlying asset movements.
The methodology for determining ETF base prices is also changing. Instead of using the T-2 Net Asset Value (NAV), exchanges will now use the previous day's closing price, calculated as the volume-weighted average price during the last 30 minutes of trading. If no trade occurs in that period, the last traded price will be used. In the absence of any trading, the latest available NAV will serve as the base price. SEBI has also indicated that stock exchanges and mutual funds should aim to use the previous day's closing NAV as the base price from April 1, 2027.
Furthermore, SEBI has mandated a pre-open call auction session specifically for gold and silver ETFs. This measure is intended to improve price discovery for these commodities, which trade continuously in international markets while domestic ETFs operate only during Indian market hours. These changes are based on recommendations from stock exchanges, the Secondary Market Advisory Committee, and feedback from public consultations.