India’s markets regulator has proposed replacing the T-2 day closing net asset value (NAV) used as the base price for exchange-traded funds (ETFs) with a more current T-1 NAV to remove the one-day lag that can misalign price bands with prevailing market conditions, particularly during periods of volatility.
In a consultation paper issued on Friday, the Securities and Exchange Board of India (Sebi) said the existing framework creates structural inefficiencies. Since ETF NAVs typically change between T-1 and T-2, using the older reference price introduces an inherent lag in determining the trading range.
To address this, the regulator has proposed shifting to T-1 day data as the base price. It has suggested three possible alternatives: The closing traded price of the ETF on T-1 (based on the weighted average price over the last 30 minutes), the average indicative NAV (iNAV) over the last 30 minutes on T-1, or the closing NAV of T-1, where operationally feasible.
“The proposals reflect a positive change based on market dynamics as current volatility demands it. T-1 will allow investors an entry or exit at the latest available price,” said Hemen Bhatia, executive director and chief executive at Angel One Asset Management.
Proposal on price band
ETFs in India span equity, debt, gold and silver and are traded like shares on exchanges but derive their value from an underlying index or asset. At present, exchanges apply a uniform ±20% price band to most ETFs, with a tighter ±5% band for overnight ETFs. These limits are calculated using the NAV from two trading days ago, unlike stocks and indices, which use the previous day’s closing price.
The regulator has also flagged concerns with the uniform 20% price band applied across ETF categories. An analysis of trading data from April to December 2025 shows that more than 99.8% of equity and debt ETF movements were within 10% on a single day. For commodity ETFs, over 98% of movements were within 9%, while overnight ETFs largely moved within a 5% range. Against this backdrop, Sebi said a flat 20% band may be excessively wide and not reflective of the volatility profile of the underlying assets.
The regulator also said that during heightened volatility in precious metals in late January 2026, the existing bands proved inadequate to ensure close alignment between ETF prices and their underlying assets.
Another issue identified is the manual adjustment of corporate actions, such as dividends and bonuses, in the T-2 NAV for determining the base price, a process that increases the risk of operational errors. Moving to T-1 references could reduce the need for such interventions.
Bhatia added that there should be no price band for equity ETFs whose underlying have futures as well as ETFs of gold and silver.
“Ideally, there should not be any restriction on the price movement of the ETF, when the same stocks/physical commodity, where there is no price restriction, are held in an ETF format?”
The regulator has invited comments on its proposals until 6 March.
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