Why international ETFs are trading at a premium and how investors can avoid overpaying
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Imagine you’re looking to invest in an exchange-traded fund (ETF) that tracks a global index. The fund’s net asset value (NAV) is Rs 100, yet the market price is Rs 110. Would you willingly pay a 10% premium? Likely not. However, this is exactly what’s happening with many international ETFs in India. Some are trading at a premium of up to 25%, making it costly for investors seeking global diversification. So, why are these ETFs trading at a premium, how does this impact investor returns, and what alternatives exist to avoid overpaying? Let’s break it down. Why Are International ETFs Trading at a Premium? The primary reason behind the price distortion is regulatory restrictions. The Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) impose strict limits on overseas investments by mutual funds. According to these guidelines, Indian mutual funds can invest a total of $7 billion in foreign equities, with a separ...