Global diversification has become a major theme for Indian investors over the past year, especially as the Nifty has significantly underperformed most global indices in dollar terms. But even as interest surges, a serious pricing distortion is playing out in India’s overseas ETF market—one that “poses a real danger to investors,” warns Alok Jain, Founder of Weekend Investing.
Jain highlights that while global equities have delivered robust returns — Kospi up 55%, Hang Seng up 32%, Nikkei up 28%, Euro Stoxx up 27%, Germany up 32%, Brazil up 31%—the Nifty has gained just 5.5% in dollar terms. This underperformance has pushed many investors to explore international ETFs listed in India, which track global benchmarks such as the Nasdaq 100, NYSE Fang+, and Hang Seng Tech Index.
However, the “easiest way to diversify globally” has now become a minefield.
ETFs trading
According to Jain, several India-listed global ETFs are trading at double-digit premiums to their indicative net asset value (iNAV), with the deviation rapidly widening since mid-2025.
For example:
Mirae Asset Hang Seng Tech ETF is trading at a 24% premium.
iNAV: Rs 21.2; Market Price: ₹26.36.
Mirae Asset NYSE Fang+ ETF carries a 17% premium, with prices climbing despite flat underlying value.
Motilal Oswal Nasdaq Q50 ETF shows a sharp gap—iNAV Rs 82 vs market price Rs 98.
Nippon India Hang Seng ETF trades at a 17% premium, with its spot price at Rs 516 against an NAV of Rs 430.
“These numbers are simply crazy,” Jain says. “If the ETF is worth Rs 100, people are paying Rs 120 or more for no reason.”
Why is the mispricing happening?
The root cause lies in a regulatory cap introduced in 2021, which restricts the entire mutual fund industry—including ETFs—to investing only $7 billion overseas.
This limit was fully exhausted by 2022. As a result:
Fund houses cannot create new ETF units for overseas schemes.
Demand remains high, but supply is frozen, causing prices to shoot up well above fair value.
“This is a classic demand–supply mismatch,” Jain explains. “Investors want global diversification, but they don’t realise they’re buying overpriced products.”
A single SEBI move
The risks are staggering.
If SEBI raises the $7 billion limit—something that could happen “with one stroke of a pen”—AMCs would resume creating new ETF units, immediately pushing prices back toward NAV.
“If you bought at a 20% premium, that 20% can vanish instantly,” Jain warns.
Even in a rising global market, premiums collapsing can turn gains into losses.
In a falling market, the combined impact of falling NAV and disappearing premium can result in 25–40% losses.
More risks for FoF
Many investors enter global markets through fund-of-funds (FoFs), thinking it is safer. Jain says this is even riskier.
FoFs price their NAV using the ETF’s inflated market price, not its true NAV.
Many Indian investors prefer global exposure through fund-of-funds (FoFs), assuming they are simpler and safer than buying ETFs directly. But Jain warns that FoFs can actually magnify the risks created by India’s mispriced global ETFs. This happens because a FoF calculates its NAV based on the ETF’s traded market price, not the ETF’s true underlying NAV. If the ETF is already trading at a steep premium, the FoF ends up importing that inflated price into its own NAV—creating what Jain calls “double inflation.”
The distortion becomes clear in the numbers. The NYSE Fang+ Index delivered a 28% return. But the Mirae Asset Fang+ ETF showed a 37% gain because of the elevated premium at which it trades. The FoF built on top of this ETF reported an astonishing 69% return—far higher than what the underlying global stocks actually earned. Jain cautions that such amplified returns are not real value creation; they are simply the result of pricing inefficiencies. When premiums eventually collapse, FoF investors may face the sharpest losses because they are exposed twice—first to the ETF’s inflated price, and then to the FoF’s inflated NAV.
“This is a joke. There is no free lunch. Someone will be the last one holding the hot potato,” Jain says.
What should investors do?
Jain’s advice for investors is unequivocal and rooted in caution. He urges every investor to check the ETF’s indicative NAV (iNAV) against its market price before buying, because this comparison is the only way to understand whether the ETF is fairly priced or trading at a steep premium. If the gap is wide, the investor is not truly buying the underlying global index—they are buying inflated demand.
He warns investors to strictly avoid global ETFs that trade at 10–25% premiums, stressing that such distortions can wipe out years of potential returns in a single day. A premium may look harmless or even normal during a strong market phase, but that illusion can disappear without warning.
Jain cautions against the assumption that premiums will remain elevated forever. “All it takes is a regulatory change or a shift in sentiment for these premiums to collapse instantly,” he notes. Investors who enter at inflated levels may suffer heavy losses even if the underlying global markets perform well.
Above all, he reminds investors that global diversification is meant to reduce risk—not introduce new risks created by irrational pricing. Paying significantly more than the fair value of the underlying defeats the entire purpose of diversifying internationally. He argues that prudent global investing requires discipline, awareness, and a willingness to step back when pricing stops making sense.
“Premiums can disappear anytime,” he warns. “Your global returns won’t depend only on the US or China markets—they’ll depend on the pricing behaviour of Indian ETFs, which right now is dangerously distorted.”
Disclaimer: Business Today provides market and personal news for informational purposes only and should not be construed as investment advice. All mutual fund investments are subject to market risks. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.