Are Indian investors overpaying for global ETFs?

Indian investors chasing the AI theme via global ETFs listed in India face a pricing trap because unit supply is capped while demand is surging, so traded prices sit far above real-time iNAV and can compress without warning. In mid November, several India-listed global trackers showed double-digit markups, with popular US and China tech exposures in the mid to high teens and even over 20 percent in some sessions, which can erase gains when the premium narrows. For example, if an ETF’s iNAV is ₹100 but it trades at ₹120, a 10 percent rise in the underlying to ₹110 still leaves the ETF at ₹120 if the premium collapses, delivering a zero return despite index strength.

This distortion traces back to overseas limits reached in 2022 that constrained fresh unit creation, including an industry cap near USD 7 billion and per-AMC sub-limits, so units outstanding stayed largely fixed while buyers kept piling in. With the creation redemption channel tight, price decoupled from value and premiums built up. Do the maths: paying a 20 percent premium needs roughly a 16.7 percent underlying rise just to break even if the premium goes to zero; if the premium shrinks from 20 percent to 10 percent while the index rises 10 percent, the effective gain is close to flat, a pattern echoed in recent examples shared for global tech trackers.

Simple checks help. Compare the live market price with iNAV on exchange or AMC pages and avoid large markups; use limit orders near iNAV rather than market orders. As a rule of thumb, prefer entries within 1 to 2 percent of iNAV, be cautious above 5 percent, and step away at double-digit premiums because compression can be faster than index gains. Consider less constrained routes like FoFs that access offshore ETFs when open, or direct overseas investing via LRS after weighing costs and taxes, to get cleaner index exposure without domestic scarcity distorting price.