This combination is now distorting prices and affecting how investors should interpret returns.
Why these premiums are appearing?
The premiums trace back to the overseas investment limits that Indian mutual funds hit in 2022. Once fund houses reached SEBI’s $7 billion cap, they were barred from creating new units in global schemes.
The freeze also applied to global ETFs.
Under normal circumstances, ETF prices and their indicative NAV (iNAV) stay closely aligned.
Value Research explains that this alignment is maintained by authorised participants who create units when the price rises above iNAV and redeem units when it falls below.
This mechanism keeps trading prices near the fund’s real-time value.
Since new unit creation is currently not permitted in overseas ETFs, this balancing mechanism has stopped working. As a result, prices are now determined more by scarcity than by the value of the underlying global stocks.
How high the premiums have become?
Several global ETFs showed sharp gaps between their market prices and iNAV on November 17 (Source: Moneycontrol):
- Mirae Asset FANG+ ETF traded at over a 20% premium
- Mirae Asset S&P 500 Top 50 ETF quoted at a similar premium
- Nippon India ETF Hang Seng BeES traded nearly 20% higher than its iNAV
According to Value Research, these are not isolated cases.
Most global ETFs on Indian exchanges currently trade above their intrinsic value because investors are competing for a limited number of units.
A similar supply-driven spike was recently seen in silver ETFs, where increased buying interest and tight supply pushed prices temporarily above underlying value.
How these premiums affect investors?
Premiums directly influence eventual returns. If an investor buys a global ETF at a 20% premium, that premium can vanish when prices revert toward the NAV. This adjustment reduces returns even if the underlying global markets continue to rise.
ETF prices tend to move back toward intrinsic value over time. When demand normalises or supply constraints ease, the premium shrinks—and the reduction appears as a loss for investors who bought at inflated prices.
Why Indian ETFs behave differently?
ETFs tracking domestic indices such as the Nifty 50 or Sensex do not face these issues. They can freely create and redeem units, which keeps trading prices close to NAV.
Deviations, when they occur, are usually small (within 1–2%) and correct quickly.
Global ETFs, in contrast, are currently operating more like closed-end funds. Their prices reflect short-term demand-supply mismatches rather than the actual performance of underlying global equities.
What investors should keep in mind?
As long as overseas investment limits remain unchanged, global ETF units will remain in short supply. Demand, meanwhile, has remained strong because global tech stocks and US markets have been performing well.
High premiums indicate that investors are paying more than the fund’s fair value. While this does not prevent long-term gains, it does increase the risk that part of future returns may be lost simply through premium correction.