The Securities and Exchange Board of India (Sebi) is implementing significant changes to India's exchange-traded fund market from September 1, 2026. According to reports from Mint, ETF price bands will be determined using the previous day's closing market price instead of the current T-2 NAV-based reference. The regulator has also introduced dynamic price bands and a pre-open auction mechanism for gold and silver ETFs to improve price discovery. These reforms aim to ensure ETF prices reflect actual market conditions more efficiently, with the broader objective of ensuring investors receive the right price at the right time.
The need for reform became evident through several market events over the past two years. As reported by Mint, during March 2025, sharp moves in gold prices exposed the limitations of using a two-day-old reference price. More recently, in January 2026, several silver ETFs traded at premiums of nearly 14-16% above their underlying value amid speculative buying. When those premiums corrected, some ETFs saw double-digit declines in a single day despite silver prices falling only around 2-3%. These events reinforced the need for a stronger price discovery framework that keeps ETF prices better aligned with their underlying value.
A critical factor contributing to ETF pricing gaps is the supply constraint mechanism that limits unit creation when ETF prices trade above NAV. As reported by Mint, this restriction creates a supply-demand imbalance that can drive prices above fair value. The reforms address this issue by moving to a more current reference price and introducing dynamic price bands that expand when underlying assets move significantly. The pre-open auction mechanism for gold and silver ETFs is specifically designed to improve price discovery during periods of high volatility when supply constraints are most likely to occur.
For retail investors, the biggest change is expected to be a smoother trading experience, particularly during periods of volatility. According to Shweta Rajani, associate director at Anand Rathi Wealth Ltd, reported by Mint, ETF prices should remain more closely aligned with the value of the underlying assets. The introduction of pre-open auctions for gold and silver ETFs could reduce sharp price swings at the start of trading sessions. Tejas Khoday, Co-Founder and CEO of FYERS, calls the move a long-overdue correction, noting that the new dynamic bands start tighter and widen only when the underlying genuinely moves, allowing prices to track the market far more honestly.
While the reforms should improve price discovery and keep ETF prices closer to their underlying value, experts do not expect premiums and discounts to disappear altogether. As reported by Mint, Rajani states that investors should expect ETF prices to stay more closely aligned with their underlying value rather than expect a meaningful reduction in premiums or discounts. The move to a more current reference price, dynamic price bands and pre-open auctions strengthens the overall price discovery process, likely resulting in more efficient trading rather than a dramatic narrowing of premiums and discounts. Khoday notes that the new framework should allow ETF prices to respond more accurately to movements in the underlying asset.
