The premium effectively reduces potential profit and exposes investors to an increased downward risk if the ETF prices fall. | Photocredit: Artystarty
The prices of internationally oriented artistician funds act on premium above indicative NAV, because investors are hurrying in order to be their costs on average after the recent competitive decrease in the American markets.
Sebi froze fresh intake into international funds and ETFs last March after reaching the upper limit of $ 7 billion and $ 1 billion by RBI, but investors can trade the units of ETFs on the stock exchanges and in recent weeks there is a peak at ETFs.
Motilal Oswal Nasdaq Q50 ETF, for example, traded with a premium of 10 percent on the stock exchange at £ 69.59 on Friday against the I-NAV of £ 63 announced by the House House. Nippon India ETF Hang Seng Bees was quoted on Friday at a premium of £ 376 against his NAV of £ 333.
The premium effectively reduces potential profit and exposes investors to an increased downward risk if the ETF prices fall. In the ideal case, ETF prices should tailor to his I-NAV, which represents the total value of his underlying assets. The mismatch of the demand offer, however, has led to substantial price premiums, which influence investor returns.
Nikunj Saraf, VP, Choice Wealth said that the international ETFs in India are trading with considerable premiums to their NAV -driven, mainly due to regulatory limitations and increased global diversification.
Buying ETFs at a premium requires that investors achieve an extra return to even break. In the short term, if the premium compresses through arbitration mechanisms, investors can immediately realize losses despite favorable underlying asset performance, he added.
Investor’s interest
Feroze Azeez, Deputy CEO, Anand Rathi Wealth said that international ETFs have a premium, mainly because of strong recent performance and rising investors’ interests. In the past six months, global funds, in particular aimed at China and the US, have performed better than the Indian markets and this was driven by FIIs moving their investments to those countries, he added.
When it comes to international funds, he said it is not recommended to invest in funds based on the recent rally, because it was largely powered by liquidity instead of important structural improvements in Fundamentals, he said.
If an ETF consistently trades a premium through its I-NAV, investors must reconsider their access points or use limit orders instead of market orders to pay too much, a market expert said.
For investors who want to bypass ETF premium on domestic exchanges, they can do this by using direct overseas investments via the Liberalized Remittance Scheme (LRS). Under LRS, Indian investors can pick up up to $ 250,000 a year to invest in global markets.
Investors can prevent them from paying bloated premiums and ensuring that their purchase price is closely matching the actual value of the assets. This approach not only improves the potential return, but also offers greater flexibility in selecting assets, he said.
Published on April 14, 2025
