SEBI's revised ETF framework takes effect from today, September 7: What investors need to know

The Securities and Exchange Board of India (SEBI) has introduced a revised framework for exchange-traded funds (ETFs), covering base price, price bands, pre-open trading and the close-out procedure.

The new framework takes effect from September 7, 2026. SEBI had initially planned to implement the changes from September 1, but later extended the deadline to September 7 to facilitate a smooth implementation.

What has changed?

The changes are aimed at improving price discovery and market efficiency and making the trading framework for ETFs more closely aligned with their underlying values.

Long-term investors do not need to change their investment strategy solely because of these changes. They should continue to consider the underlying asset or index, costs, liquidity and tracking difference before investing.

Base price and price bands

SEBI has revised the norms governing the determination of the base price and price bands of ETFs.

The regulator has also introduced revised provisions for price bands for specified categories of ETFs. The objective is to provide a trading framework that is better aligned with ETF prices and movements in their underlying assets.

For investors, these changes matter because the base price is used to determine the applicable trading range for an ETF.

Pre-open auction for commodity ETFs

A key change under the revised framework is the introduction of a call auction in the pre-open session for commodity ETFs.

The mechanism is intended to facilitate price discovery before regular trading begins. This is particularly relevant for commodity ETFs, where movements in underlying commodity markets can influence the value of the ETF.

Overnight and Liquid ETFs

SEBI has also revised the close-out procedure for Overnight and Liquid ETFs as part of the new framework.

The change is part of the regulator’s broader effort to improve the trading and settlement framework for ETFs.

What does this mean for investors?

The changes primarily affect the trading and price-discovery mechanism for ETFs. They do not change the basic investment objective of an ETF.

Investors should continue to consider factors such as the underlying index or asset, costs, liquidity and tracking performance when selecting an ETF.

The revised framework is particularly relevant for investors who actively trade ETFs or place orders around the market opening.

“SEBI is trying to make ETF trading more efficient and reduce situations where an ETF’s market price gets stuck too far away from its underlying value. For long-term investors, the change is unlikely to alter the basic investment case of an ETF, but it is useful to understand how the trading mechanism is changing.

“An ETF is a relatively simple investment instrument that allows investors to invest in a basket of securities or an underlying asset through a single unit traded on the stock exchange. What matters most for investors is understanding what the ETF actually tracks and whether it fits their investment goal and time horizon.

“While SEBI’s new rules may improve the way ETFs trade, long-term investors should not lose sight of the bigger picture. The underlying asset, the quality of the ETF and the investor’s time horizon are far more important than short-term price movements.

“Investors should stay focused on their goals, avoid reacting to temporary volatility and give their investments adequate time to work. Investors should check the ETF’s iNAV before buying or selling and consider using limit orders, especially during volatile markets,” said Shweta Shastri, CFP and founder of Finnora Wealth Studio.

When do the new rules apply?

The revised framework therefore takes effect from September 7, 2026.

Disclaimer: This article is written purely for informational purposes and should not be considered investment advice from Upstox. Securities mentioned are illustrative and not recommendations. Investors should do their own research or consult a registered financial advisor before making investment decisions.