International ETFs are trading at premiums. What should investors do?
Subscribe to enjoy similar stories. The landscape of international investments through exchange-traded funds (ETFs) in India has become increasingly complex, with investors facing unprecedented challenges in accessing global markets. Regulatory constraints and market dynamics have created a unique investment environment where overseas ETFs are trading at substantial premiums.
The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) have implemented guidelines that impact international investment opportunities. Mutual funds are restricted to investing only $7 billion in foreign equities and $1 billion in international ETFs. These restrictions, virtually unchanged for nearly a decade, have created a constriction in the global investment channel.
The most alarming aspect is the unprecedented premium at which these ETFs are trading. These funds are trading at premiums ranging from 15% to 20% above their net asset value (NAV). The question is how to know if the ETFs are trading at a premium.
One way is to compare their indicative NAVs (iNAVs) with their market trading prices. The NAVs for ETFs are published daily on the Association of Mutual Funds in India (Amfi) website, while the iNAVs are updated frequently during market hours. This can be found on the specific ETF pages on exchange websites.
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