In the week to 21 October, the premium on the Motilal Oswal Nasdaq Q50 ETF fell from 112 per cent to 91 per cent, according to Value Research. A client who bought near the top could have lost money even though the Nasdaq shares inside the fund hardly moved. The international ETF premium, which is the gap between the price a listed fund trades at and the value of what it holds, has become the hidden cost of global investing for Indian clients this year. It exists because the domestic routes abroad are full, and the guide to GIFT City mutual funds and other global routes sets out the alternatives that remain open.
The point for an advisor is easy to state and easy to miss. A client who buys an international ETF on the NSE is not buying US shares at their market value. The client is buying a scarce unit from another investor, at whatever price the queue sets that day. So the advisor has to check that price against the value of the holdings before an order goes in, and explain to the client that the gap can close without warning.
Why the international ETF premium exists
SEBI caps how much Indian mutual funds can invest abroad. Under its circular of 3 June 2021, the industry as a whole may hold up to USD 7 billion overseas, within which a separate pool of USD 1 billion is set aside for overseas ETFs. Value Research reported in September that the ETF pool filled in April 2024, and fund houses have not been able to create new units since.
Creating units is what normally keeps an ETF price honest. When the price rises above the value of the holdings, a market maker asks the fund house for fresh units, buys the underlying shares and sells the new units on the exchange, which pulls the price back down. With creation frozen, the number of units is fixed. Every new buyer has to find a seller, and the price drifts as far as demand takes it. Value Research put it bluntly, saying a buyer at a large premium is "buying a shortage, not Nasdaq".
How the new price band rule let the gap widen
For about four years, an ETF's daily price band was drawn 20 per cent either side of its NAV from two days earlier. That rule was never meant to cap premiums, but in practice it did. SEBI's circular of 15 June 2026 moved the base to the previous day's closing price, measured as the volume-weighted average of trades in the last 30 minutes. A further SEBI circular dated 28 August 2026 pushed the start date from 1 September to 7 September.
For ETFs that can create units, the change made trading smoother. For international ETFs that cannot, it allowed the premium to compound from one session to the next. Value Research data show the Nasdaq Q50 ETF's premium went from 19.5 per cent on 4 September to 72.8 per cent on 10 September, against an average of 14.8 per cent over the previous year. SEBI has also asked exchanges and fund houses to work toward using the previous day's closing NAV as the base price from 1 April 2027, although it has not said how ETFs trading far outside such a band would be handled.
What the premium means for a client's money
The September figures show the scale of the problem. On 10 September, Nasdaq Q50 ETF units closed at ₹199.89 against a NAV of ₹115.69, according to Value Research. About two fifths of the price a buyer paid that day therefore bought no shares at all. That part was the price of a unit at a time when no new units could be made.
That extra amount carries a risk that has nothing to do with the stock market. If the premium narrows, the unit price falls even when the underlying index is flat. According to INDmoney, the ETF hit its lower price limit on 21 and 22 September as the premium unwound, and the premium narrowed again last week. Nobody can short these units to profit from an overpriced market, so no natural force pulls the price back toward the value of the holdings until creation reopens. Funds of funds that hold these ETFs carry the same exposure one step removed.
The international fund doors that are still shut
The premium is one symptom of a wider shortage. On 21 October, Edelweiss Mutual Fund cancelled paused SIPs in six international funds, including its US Technology and US Value funds, which had been closed to new money since July, Value Research reported on 23 October. The fund house's notice said the cancelled SIPs "shall not be reactivated". Clients who want to keep investing in those funds will need new instructions once the funds reopen, while money already invested stays in place and can be withdrawn.
A few doors are open, in a limited way. On 22 October, Value Research listed Baroda BNP Paribas Aqua FoF as open for lump sums and SIPs, while three Invesco India funds of funds accepted SIPs only, capped at ₹10 lakh per PAN per day. These openings depend on room under each fund house's overseas limit, which is held at its February 2022 level according to Value Research, so they can shut again at short notice. The pattern is the one described in why international mutual funds keep closing.
How the other routes abroad compare
Clients who want foreign assets without paying a scarcity price have other routes, and each has its own limits. A resident can send money abroad under the Liberalised Remittance Scheme, up to USD 250,000 per person per financial year, and buy US-listed ETFs or shares at their market value. That route brings TCS on investment remittances above ₹10 lakh in a tax year, reporting in Schedule FA and questions about US estate tax that a domestic ETF does not raise. The guide to TCS on foreign remittance covers the collection rules in detail.
GIFT City funds offer a further path, with their own structures and eligibility conditions. Private US real estate is another, held for offshore investors through a US corporation, known as a blocker, that owns the property interest. It has no daily traded price and therefore no premium, but it is illiquid and cannot be sold easily before the property is sold, as the guide to US commercial real estate investment for advisors explains. No route is better in every case, because each one swaps one constraint for another.
What advisors should check before a client buys
The practical work is a short routine that runs before any order for an international ETF, or for a fund of funds that holds one. The steps follow the order in which an advisor meets them.
- Compare the market price with the iNAV, the indicative NAV that fund houses publish through the trading day on their websites or through the exchanges, and note the gap in the client file.
- Explain to the client in writing that part of the price buys scarcity rather than shares, and that this part can disappear while the index holds steady.
- Check whether a fund of funds or SIP route is open, and whether any paused SIP has been cancelled, as Edelweiss did on 21 October.
- Where the client has room under LRS and the appetite for it, set out the direct route with its TCS and reporting duties, and leave the tax decision to the client and their CA.
Every route abroad carries risk, and choosing a different wrapper does not remove it. Clients face loss of capital, currency movements, concentration in a single market and, with ETFs, the premium itself. Private real estate adds illiquidity, falling property values, tenants leaving, leverage and distributions that may not be paid. Advisors who introduce eligible clients through Raveum's partner page will recognise the same discipline, because every route needs the risks written down before money moves.
The fall from 112 per cent to 91 per cent last week was not a verdict on American technology shares. It was a reminder that, when supply is fixed, the price of a unit can move on its own, and that the client pays for that movement. Until creation reopens, the international ETF premium is a cost to measure before every trade, not a detail to notice afterwards. The guide to GIFT City mutual funds and other global routes sets that cost beside the alternatives, which is where a client conversation about investing abroad should now begin.
Frequently asked questions
What is an international ETF premium?
An international ETF premium is the amount by which an Indian-listed ETF holding foreign shares trades above the value of those shares, usually stated as a percentage of NAV. The extra amount buys no additional shares, and it can shrink or vanish without any change in the foreign market the fund tracks.
Why do international ETFs trade above NAV in India?
They trade above NAV because fund houses cannot create new units. SEBI caps overseas ETF investment by the mutual fund industry at USD 1 billion, and that pool filled in April 2024. With a fixed number of units and steady demand, buyers bid prices above the value of the holdings.
What is iNAV and where can an advisor check it?
iNAV, or indicative net asset value, is a running estimate of an ETF's value during the trading day, based on the latest prices of its holdings. Fund houses publish it on their websites or through the stock exchanges. Comparing the market price with iNAV shows whether a client is paying a premium.
Can a client lose money if the ETF premium falls?
Yes. If the premium narrows, the unit price falls even when the underlying index does not move, so a client who bought at a large premium can lose capital on that gap alone. The Nasdaq Q50 ETF showed this in September and October 2026, when its premium shrank sharply within days.
When will international ETF premiums come down?
Nobody can say. Premiums depend on demand and on whether fund houses regain room to create units, which needs headroom under SEBI's overseas limits. SEBI has asked exchanges and fund houses to work toward a NAV-based price band from 1 April 2027, but it has not said how far that would narrow existing gaps.
Is buying US shares under LRS an alternative to international ETFs?
It can be for eligible residents. Under LRS a client can remit up to USD 250,000 a financial year and buy US-listed shares or ETFs at market value. The trade-off is TCS above ₹10 lakh, Schedule FA reporting and possible US estate tax, which the client should discuss with their CA.
This article is for general education and is not tax, legal or investment advice. Rules change and depend on individual circumstances. All investing involves risk, including loss of capital, illiquidity and currency movements. Offerings on Raveum are available to eligible investors only and are not open to the general public.
