Industry Odisha Bureau, Oct 23: India-listed global ETFs are trading well above the value of their holdings. Regulatory limits have restricted mutual funds’ ability to buy foreign securities. Investor demand keeps rising.
Investors in India seeking global exposure through local ETFs are paying steep markups. All six India-listed international ETFs traded at a premium on 30 September. Their average premium was 30.4%, according to Mint’s analysis of Value Research data.
An ETF, or exchange-traded fund, is a basket of securities traded like a share. Its net asset value, or NAV, is the worth of its underlying holdings. A premium arises when the market price exceeds that NAV.
The Motilal Oswal Nasdaq Q50 ETF carried the widest premium, at about 63%. The Mirae Asset S&P 500 Top 50 ETF stood near 45.5%. Nippon India ETF Hang Seng BeES was lowest, at about 2%.
Two years earlier, the picture looked very different. On 30 September 2024, three of the six ETFs traded at a discount.
The shift reflects a mismatch between supply and demand. Normally, fund houses create new ETF units when demand rises. They buy foreign securities to back those units, keeping prices close to NAV.
However, regulatory limits have restricted mutual funds’ ability to buy foreign securities. The RBI allows the mutual fund industry $7 billion for overseas non-ETF investments. A separate $1 billion industry ceiling applies to overseas ETFs. Each fund house may invest up to $1 billion in non-ETF assets, under Sebi rules. Its ETF limit is $300 million.
Fresh overseas allocations were halted after industry ceilings were breached in 2022 and 2024. With unit creation constrained, ETF prices can drift well above NAV.
Demand, meanwhile, has kept climbing as investors seek diversification beyond Indian equities. Anil Ghelani of DSP Mutual Fund linked premiums to the finite creation of units.
Suppose an investor pays a 50% premium and it later vanishes. Even with an unchanged NAV, the holding would lose about 33% of its value. The underlying index need not fall for investors to lose money.
Investors can instead buy overseas-listed ETFs directly under the Liberalised Remittance Scheme. The LRS lets residents remit up to $250,000 abroad each financial year. Overseas equity and debt investment under the scheme reached $2.6 billion in FY2026.
Value Research founder Dhirendra Kumar said the premiums create a divide based on sophistication. Direct investing, though, involves brokerage accounts, bank remittances, currency conversion and tax collected at source. TCS is an upfront deduction, not necessarily a final cost. It also carries currency and market risks.
Sebi’s revised price-band rules, effective 7 September, have added another twist. Daily bands now reference the previous close, based on the final 30 minutes’ volume-weighted price.
The Nasdaq Q50 ETF closed at ₹164.09 on 7 September, against an NAV of ₹118.73. Its upper band rose to ₹170.32, versus ₹142.60 under the old method. Bands can now track rising prices rather than restrain the gap.
For now, the gap between price and value remains wide. Checking an ETF’s NAV before buying has become essential for investors. Convenience, in this case, does not guarantee fair pricing.
