Mutual funds are increasingly valuing their gold exchange-traded funds (ETFs) using domestic spot prices from the Multi Commodity Exchange of India (MCX), moving away from the London Bullion and Metal Association (LBMA) benchmark.
Localized Pricing Benefits
Several prominent mutual fund houses, including Nippon MF, ICICI MF, Bandhan MF, and Motilal Oswal MF, have recently updated their valuation benchmarks to MCX spot prices. This strategic shift is designed to ensure that the Net Asset Value (NAV) of gold ETFs more closely reflects real-time trading activities within the Indian market. For domestic investors, this means enhanced accuracy and a more direct valuation of their gold holdings, thereby reducing the impact of currency fluctuations.
Investors will no longer need to independently monitor international gold prices or the USD-INR exchange rate to understand their ETF’s value. Instead, domestic spot prices will directly reflect the prevailing supply and demand dynamics for gold in India, offering a more precise estimate of its market worth within the country. According to industry data, gold ETF assets stood at ₹1.28 lakh crore with over 77 tonnes of physical holdings as of December.
Swapnil Aggarwal, Director at VSRK Capital, noted that domestic gold prices have historically shown movements, trading at premiums of up to $25 per ounce during festive demand and shifting to discounts of nearly $30 by year-end, variations that global benchmarks often miss. He stated that MCX-based pricing offers a more accurate reflection of the Indian investor’s gold exposure.
Currency Risk Mitigation
Partha Sengupta, Joint Managing Director & CEO at Systematix Private Wealth, highlighted that this change represents an important structural shift, aligning pricing benchmarks with domestic market realities. He explained that LBMA-linked valuations introduce dollar-rupee volatility into gold returns, even when investors seek pure commodity exposure. With the rupee depreciating approximately 5.6% in 2025, this currency effect significantly influenced ETF performance. MCX-based pricing effectively eliminates this distortion.
SEBI Mandate and Liquidity Considerations
Securities and Exchange Board of India (SEBI) mandates that all physical gold backing Indian ETFs must be stored domestically with approved custodians, typically in the form of 99.5 per cent purity bars held in secure Indian vaults. While this move enhances domestic relevance, Sengupta pointed out that liquidity on MCX is lower compared to LBMA. This could potentially lead to wider bid-ask spreads during periods of market stress, a practical trade-off rather than a structural shortcoming.
The transition marks a significant step towards greater price discovery and investor alignment within India’s burgeoning gold ETF market.
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