'A better alternative is to take LRS route and take US equity exposure directly through an international broking platform such as Interactive Brokers or others,' says an expert.
So there I was, scrolling through the latest news India on my phone during a chai break, when I stumbled upon a headline that basically said Indian investors are paying almost a fifth extra just to hold a piece of US tech stocks. I thought, “What on earth is happening?” and decided to dig deeper because this kind of breaking news didn’t fit the usual pattern of market updates I’m used to. Turns out, the story is about two home‑grown exchange‑traded funds Motilal Oswal Nasdaq 100 ETF and Mirae Asset NYSE FANG+ ETF that have been trading at huge premiums compared to the actual value of the assets they hold.
What caught my attention was the number a 20 percent premium. In most cases, that’s a red flag for any retail investor, especially when the underlying assets are US‑listed tech giants that already feel pricey. I started wondering why the gap existed, and whether I should keep an eye on these funds or look for a smarter route. If you’re like me, you’d probably want a simple answer without having to read a textbook on finance.
Let me walk you through what I discovered, how I felt when I first saw the numbers, and what the experts especially Ashwini Shami of OmniScience Capital are suggesting as a more sensible approach.
Current Pricing Situation A Personal Look
When I checked the NSE screen this morning, Motilal Oswal Nasdaq 100 ETF was listed at Rs 289.77 per unit. The net asset value, which is basically the true worth of the fund’s holdings, was only Rs 241.48. That means you’re paying nearly 20 percent more than what the fund actually owns. The same story is playing out for Mirae Asset NYSE FANG+ ETF it’s also trading at a significant premium, although the exact numbers differ slightly.
These numbers aren’t just some random spikes; they reflect a genuine scarcity of sell‑side units. In most cases, when there aren’t enough shares of an ETF available for you to buy, the market price climbs because demand outruns supply. It’s a classic case of scarcity driving price, and it’s happening right now for Indian investors wanting exposure to US tech stocks.
What happened next is interesting: I reached out to a few friends who are also into mutual funds and ETFs, and many of them said they had tried buying these ETFs a few weeks ago only to find the price suddenly jumping. Some even shared screenshots showing the spread widening dramatically within a single trading session. This definitely turned into viral news among our small investing circle, and the conversation quickly moved to what the right move should be.
Why the Premium Exists My Understanding
ETFs are supposed to trade close to the value of the securities they hold, thanks to a built‑in arbitrage mechanism. In theory, if the NAV is Rs 100, the market price should hover around Rs 100 as well. However, when the creation of new ETF units becomes restricted either because of regulatory caps on overseas exposure or because market makers can’t supply enough shares the price can drift away from the NAV.
In the case of Motilal Oswal Nasdaq 100 ETF and Mirae Asset NYSE FANG+ ETF, the supply side has been constrained for a while. The International fund segment in India has faced limits on fresh overseas investment capacity, which means fewer new units can be created. At the same time, the appetite for US tech exposure has exploded, especially after a series of high‑profile earnings beats from big‑cap US names.
Think of it like the mango season in Delhi if the market only has a handful of mangoes but every household wants one, the price shoots up. The same principle is at work here, except the “mangoes” are units of an ETF that tracks US stocks.
When the market price lifts well above the NAV, investors end up paying an immediate premium. For example, if an ETF’s NAV is Rs 100 but units trade at Rs 118‑120, a new buyer is effectively paying Rs 18‑20 extra right off the bat. Over time, if more units become available or demand cools down, the price may settle closer to the NAV, but until then the premium sticks around.
Many people were surprised by this mismatch because they expected listed ETFs to behave like regular stocks with tight price‑NAV alignment. This mismatch, however, is a clear sign that the current market dynamics especially the limited supply of units are driving the premium.
What Investors Should Watch My Checklist
After reading the trending news India and talking to a few seasoned traders, I compiled a short checklist of things to keep an eye on before jumping into an ETF that might be overpriced:
- Market price versus latest NAV always compare the two.
- Indicative NAV (iNAV) during trading hours this gives a real‑time sense of the fund’s underlying value.
- Bid‑ask spread a wider spread often signals lower liquidity.
- Available trading volume thin volumes can mean you’ll have trouble selling later.
- Tracking error how closely the ETF follows its benchmark index.
- Liquidity trends whether the premium has been widening over days or weeks.
- Structural versus temporary premium is this a short‑term scarcity issue or a long‑term pricing problem?
In most cases, if the premium looks persistent and the liquidity is thin, it might be wiser to wait for a better price discovery or consider alternative ways of getting the same exposure.
That’s basically what Ashwini Shami of OmniScience Capital was warning about. He emphasized that paying a hefty premium could erode future returns, even if the US market continues its upward march.
Key Risk My Takeaway
US‑focused ETFs are undoubtedly a convenient basket for diversification, especially for investors who don’t want to pick individual stocks. But if you buy them at a large premium, you are essentially betting that the underlying stocks will rise enough to offset the extra cost you paid upfront.
Imagine you buy Motilal Oswal Nasdaq 100 ETF at Rs 289.77 when its NAV is Rs 241.48. Even if the Nasdaq index climbs 10 percent over the next year, the premium could still leave you with a net loss compared to buying the same exposure directly through a global broker.
That’s why many experts, including Ashwini Shami, suggest using the LRS (liberalised remittance scheme) route to invest directly via platforms like Interactive Brokers. By doing so, you can either buy a globally listed ETF that mirrors the whole US market or handpick a curated portfolio that avoids overvalued stocks. This way, you don’t get stuck with an over‑priced Indian‑listed product.
In my own case, after seeing the premium, I decided to open an account with an international broker using the LRS route. It felt a bit more complex at first, but the freedom to choose the exact stocks or ETFs I wanted without paying an extra 20 percent made it worth the effort.
Alternative Paths What I Did Next
Having weighed the pros and cons, I followed the advice and went for the LRS route. The steps were simple enough:
- Approached my bank and filled out the LRS declaration form.
- Transferred the amount needed for my US equity exposure.
- Opened an account on Interactive Brokers, which offers a huge range of US‑listed ETFs and individual stocks.
- Compared the expense ratios and tracking errors of the US‑listed ETFs with the Indian‑listed ones.
- Finally, I bought a broad US market ETF that tracks the total US stock market, at a price that matched its NAV, without paying any premium.
The whole process took a couple of days, but the peace of mind that I wasn’t overpaying made it worthwhile. If you’re reading this as breaking news and wondering what to do, consider whether you’re comfortable with the extra cost or if you want to explore the LRS avenue.
One more thing keep an eye on the regulatory environment. The RBI and SEBI occasionally tweak the limits on overseas capital flows, which could impact how easily you can use the LRS route. Staying updated with the latest India updates on financial regulations can save you a lot of hassle later.
