The Securities and Exchange Board of India (Sebi) has revised the trading rules for exchange-traded funds (ETFs), with changes covering base prices, price bands, pre-open trading and the close-out process.
The new framework takes effect from September 7, 2026. Sebi had initially planned to introduce the changes from September 1, but later extended the deadline to allow exchanges and market participants more time for a smooth implementation.
The changes are aimed at making ETF prices respond more closely to the value of the assets they track, particularly during sharp market movements.
An ETF has two key values. The net asset value (NAV) shows the per-unit value of the securities held by the fund, while the market price is what buyers and sellers agree on during trading.
Ideally, these two prices should remain close. However, they can sometimes move apart, especially when markets are volatile or an ETF is not very actively traded.
One reason for this has been the way daily trading limits were set.
Until now, the base price for an ETF was its NAV from two trading days earlier, or the T-2 NAV. Most ETFs could then move within a flat 20% band on either side of that base price.
From September 7, this will change.
The base price will now be based on the previous day’s closing price. It will be calculated using the volume-weighted average price (VWAP) of the ETF’s trades during the last 30 minutes of the previous trading session.
In simple terms, the day’s trading range will start from where the ETF actually traded towards the end of the previous session, rather than from a two-day-old NAV.
Sebi has also changed the price bands depending on the type of ETF.
For equity and debt ETFs, the initial price band will be 10%. It can be widened up to 20% in stages. Each time the limit is reached, there will be a 15-minute cooling-off period before the band can be widened further.
Gold and silver ETFs will start with a tighter 6% band. However, their bands can be widened by 3% steps without an upper limit.
This is particularly relevant for precious metal ETFs because gold and silver prices can move sharply in global markets when Indian markets are closed. The wider flexibility is designed to allow these ETFs to adjust to large overnight changes in bullion prices.
ETFs whose underlying values remain largely unchanged, including overnight and liquid ETFs, will continue to have a fixed 5% price band.
Another major change is for gold and silver ETFs.
From September 7, these ETFs will have a pre-open call auction at the start of each trading day. The process is similar to the one used for stocks.
During the pre-open period, buy and sell orders are collected and then matched at a single equilibrium price. This is intended to make the opening price more reflective of overall demand and supply, rather than being influenced by an isolated order placed at the start of trading.
The changes are aimed at improving price discovery and making ETF trading more closely aligned with the value of the underlying assets.
However, the new rules do not mean that an ETF will always trade exactly at its NAV.
ETFs can still trade at a premium or discount to NAV because of demand, supply and liquidity. The new framework also does not change ETF returns, costs or taxation.
For investors, checking the indicative NAV (iNAV) before trading and using limit orders can still be important, particularly when dealing with less-liquid ETFs.