Under SEBI valuation guidelines, how are gold and silver held by Gold and Silver Exchange Traded Funds (ETFs) valued for daily NAV computation?

[ A ]Based on the retail purchase price of 22-karat gold jewellery at local neighborhood retail shops.

[ B ]Based on a fixed statutory price of Rs. 1,000 per gram determined by the Reserve Bank of India.

[ C ]Based on the AM fixing price of the London Bullion Market Association (LBMA) in US Dollars per troy ounce for gold (995.0 fineness) and silver (999.0 fineness), adjusted for foreign exchange rates and local duties.[ CORRECT ]

[ D ]Based on the book value of mining equipment owned by international extraction companies.

Takeaway

Option C is correct: Based on the AM fixing price of the London Bullion Market Association (LBMA) in US Dollars per troy ounce for gold (995.0 fineness) and silver (999.0 fineness), adjusted for foreign exchange rates and local duties.

Derivation

As per SEBI (Mutual Funds) Regulations, gold held by a Gold ETF scheme is valued based on the AM fixing price of the London Bullion Market Association (LBMA) in US Dollars per troy ounce for gold of 995.0 fineness (parts per thousand). Similarly, silver held by Silver ETFs is valued at the LBMA AM fixing price for silver of 999.0 fineness per troy ounce, converting USD to INR at RBI reference rates and adding customs duties/taxes. This question tests specific commodity ETF valuation rules. A common error is assuming local retail jewellery prices are used.

Why the others fail

A — Based on the retail purchase price of 22-karat gold jewellery at local neighborhood retail shops.

Retail jewellery prices include manufacturing wastage and making charges, making them ineligible for institutional ETF bullion valuation.

B — Based on a fixed statutory price of Rs. 1,000 per gram determined by the Reserve Bank of India.

Gold and silver are globally traded market commodities and are not subject to artificial fixed pricing by the Reserve Bank of India.

D — Based on the book value of mining equipment owned by international extraction companies.

ETF holdings represent physical bullion stored in institutional vaults, not equity shares or equipment of mining companies.