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India’s restrictions on overseas investments have created a two-tier market for global investing, with international exchange-traded funds (ETFs) from domestic fund houses trading at steep premiums to their underlying assets while investors buying overseas-listed equivalents can access them closer to market value. All six international ETFs in India were trading at a premium on 30 September, with the average premium at 30.4%, according to a Mint analysis of data from Value Research. The Motilal Oswal Nasdaq Q50 ETF had the highest premium, at 63%. An ETF trades at a premium when its market price exceeds its net asset value (NAV), which represents the value of its underlying holdings. The picture was different two years earlier: on 30 September 2024, three of the six ETFs traded at a discount on the NSE and BSE, with the Motilal Oswal Nasdaq Q50 ETF at the steepest discount of 4% on both exchanges. The widening premiums reflect a mismatch between demand and supply. Regulatory limits on overseas investments by Indian mutual funds have restricted their ability to buy foreign securities and create fresh ETF units. Meanwhile, demand for global exposure has risen as investors seek diversification beyond Indian equities. Changes in how price bands are calculated for ETFs have also contributed to the widening gap. “The ability of an AMC to buy the underlying international stocks has gotten compromised due to the RBI-driven limits, which are translated by Sebi and distributed to AMCs. Since these limits allow finite creation of units, this leads to a premium,” said Anil Ghelani, head of passive investments and products at DSP Mutual Fund. The limits stem from overseas investment caps. The Reserve Bank of India (RBI) allows the mutual fund industry to invest up to $7 billion in overseas non-exchange-traded funds and $1 billion in global ETFs. The Securities and Exchange Board of India (Sebi) permits each asset management company (AMC) to invest up to $1 billion in non-ETF investments and $300 million in ETFs. Fresh allocations were halted after the aggregate ceilings were breached in 2022 and 2024. Rising demand At the same time, demand for global exposure has risen. “An increase in demand for global investing and the sentiment that one should diversify outside of India have raised the price of international ETFs. In the last 18-24 months, Indian markets have been flattish but global markets have performed well,” Ghelani said. Investment in overseas equity and debt under the RBI’s liberalized remittance scheme (LRS) stood at $2.6 billion in FY2026. Such investments more than doubled to $344.57 million in July 2026 from $156.19 million a year earlier. Under the LRS, resident Indians can remit up to $250,000 abroad per financial year for permitted purposes, including investments. India’s international ETFs are dominated by Motilal Oswal Mutual Fund, Mirae Asset Investment Managers, and Nippon India Mutual Fund. Kotak Mahindra Mutual Fund and HDFC Mutual Fund also offer international exposure through fund-of-funds products. Investors can pay very different prices for similar exposure depending on the route they choose. For instance, an ETF whose underlying assets are worth ₹100 may trade at ₹160 in India, a 60% premium. An investor buying a comparable overseas-listed ETF, or the underlying assets directly, could get similar exposure at close to the value of the holdings. “The premiums create a divide, one of sophistication. Investors who can manage LRS paperwork pay fair value. Smaller investors, for whom funds were meant to be the easy route, pay the markup,” said Dhirendra Kumar, founder and chief executive at Value Research. Additional risk The premium also creates an additional risk. If an investor buys an ETF at a 50% premium and that premium disappears while its NAV remains unchanged, the investment’s market value would fall by about 33%. “Direct investing offers greater transparency over the price. Investors can access international stocks and ETFs at overseas market prices without paying the elevated premiums currently seen in certain India-listed international ETFs. This can make a meaningful difference to the effective acquisition cost,” said Viram Shah, founder and chief executive of Vested. Despite the premiums, direct overseas investing remains more cumbersome than buying domestic ETFs. It requires an international brokerage account, remitting funds through a bank, and converting rupees into foreign currency. Brokerage, foreign-exchange mark-ups and applicable tax collected at source (TCS) add to the cost. Domestic ETFs offer a simpler alternative, allowing investors to access international markets in rupees through Indian exchanges. “The LRS is far from becoming mainstream. It will gather momentum as local brokers like Zerodha and Groww start their operations and get aggressive. However, forex mark-ups, platform fees and TCS charged under the LRS are small next to a 20-80% premium,” Kumar said. Revised framework Sebi’s revised price-band framework has also affected ETF trading. From 7 September 2026, the reference for determining an ETF’s daily price band shifted from its NAV two trading days earlier to its previous day’s closing price, based on the volume-weighted average price (VWAP) during the last 30 minutes of trading. In a notification on 9 September, Motilal Oswal Mutual Fund demonstrated the impact of the new norms. The Motilal Oswal Nasdaq Q50 ETF closed at ₹164.09 on 7 September, against an NAV of ₹118.73, highlighting the divergence between its market price and underlying value. The revised framework raised its upper price band to ₹170.32, compared with ₹142.60 under the earlier method. On 3 September, the ETF closed at ₹141.73, with an NAV of ₹118.83. The change meant that price bands could follow rising market prices rather than constrain the widening gap between an ETF’s traded price and its underlying value.
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