International ETFs Trade Up to 20% Above NAV as Limits Hit
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- International ETFs are quoting 8% to 20% above their NAV, with Bharat Rathore of Anand Rathi Wealth attributing the premiums to restrictions on fresh unit creation after overseas investment limits were exhausted even as investor demand stayed strong.
- Nifty 50 ETFs are trading within a narrow 0.1% to 0.6% discount to NAV, which Rathore said reflects efficient pricing, while small deviations from NAV across ETFs are normal and driven by liquidity, bid-ask spreads, or temporary market factors.
- Sectoral and silver ETFs show the widest discounts, caused by lower liquidity, speculative trading, and sharp moves in metal prices, but Rathore said such deviations are generally short-lived and should not be treated as investment opportunities.
- Rathore cautioned that investors buying international ETFs at significant premiums are paying well above the underlying portfolio's value and risk losing that premium once supply normalises, recommending international investments cap at 5% to 10% of a portfolio.
- Nilesh D Naik of PhonePe Mutual Fund urged investors to compare an ETF's market price with its intraday indicative NAV (iNAV), flagging gaps of more than 50 basis points as a potential concern for buyers or sellers.
- ETF premiums and discounts are calculated by expressing the difference between market price and NAV as a percentage of NAV, with a positive reading indicating a premium and a negative reading indicating a discount.
Why it matters: Investors purchasing international ETFs at 8-20% premiums are paying above the value of the underlying portfolio, and Rathore warned those premiums can evaporate once overseas investment caps reopen—eroding returns even when the underlying assets perform well. For domestic Nifty 50 ETFs, pricing remains efficient and small deviations are routine.
