Global ETFs trading at a premium
As Indian investors look to diversify globally, exchange-traded funds (ETFs) tracking overseas markets continue trading at premiums over their indicative NAV (iNAV).
Consider this: Data as of March 30 market hours show the Mirae Hang Seng Tech ETF trading at Rs 22.14 against an iNAV of Rs 19.02. The Mirae S&P 500 Top 50 ETF was at Rs 68.12 versus an iNAV of Rs 56.83. Similarly, the Motilal Oswal Nasdaq Q 50 ETF was priced at Rs 101 compared to an iNAV of Rs 88.76, while the Motilal Oswal Nasdaq 100 ETF traded at Rs 230.96 against an iNAV of Rs 211.96, according to data shared by Dezerv, a wealth management firm.
“ETFs are trading at a substantial premium to the NAV. Fund of Funds (FoFs) investing in these ETFs are also available at a 15–20 percent premium to the value of the underlying ETFs. Pricing is not efficient,” says Vaibhav Porwal, co-founder at Dezerv.
Demand-supply mismatch at play
The core reason lies in a structural imbalance. Aditya Agarwal, founder at Wealthy.in explains. “ETFs behave like stocks, where prices are driven by demand and supply. There is more demand from investors wanting to invest money outside India, but there aren’t enough sellers of these ETF units,” he says.
The demand is backed by the strong performance of global indices. For example, Motilal Oswal NASDAQ 100 ETF and Mirae Hang Seng Tech ETF have given a return of 30 percent and 24 percent over the last year, compared to a negative 0.47 percent return offered by Nifty 50 ETFs.
This imbalance has been exacerbated by regulatory ceilings. Mutual fund houses have already hit the $7 billion overseas investment limit for FoFs, restricting fresh flows. As a result, prices of ETFs get bid up when demand continues, but supply remains constrained.
Agarwal draws a parallel with past commodity cycles. “We saw a similar situation during the silver rally, when silver ETFs traded at a premium. It’s essentially a supply-demand issue-more buyers, fewer sellers.”
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For investors, buying at a premium means paying more than the underlying portfolio is worth. If and when the premium corrects, returns can be negatively impacted even if the global market performs well.
This makes timing and execution critical and something retail investors often overlook when chasing global diversification.
GIFT City emerges as an alternative
Amid these distortions, GIFT City (Gujarat International Finance Tec-City) is fast emerging as a more efficient route to access global markets.
Unlike domestic ETFs and FoFs, GIFT City-based investment avenues allow Indian investors to directly invest in global equities without being subject to the same tight caps. Importantly, pricing is closer to the actual market value, avoiding the premium problem.
Agarwal notes that accessibility has also improved significantly. “There are now multiple retail schemes with minimum investments starting at $5,000, and additional investments as low as $500,” he says.
This opens up a viable pathway for investors looking to allocate a portion of their portfolio overseas, particularly those with a sizeable domestic equity base. “If you already have Rs 40–50 lakh invested in Indian markets, allocating 15–20 percent globally makes sense,” he adds.
Global diversification remains important, but the route you choose matters just as much as the allocation itself.