Some investors strongly believe in passive investing, and most of them want to ensure that they invest minimally in passive products. For them, one of the efficient options is an ETF (Exchange-Traded Fund). ETFs are a great option for those seeking passive investment. In this article, we will discuss the use case of international ETFs in India and explore other important details.
What are Exchange-Traded Funds?
ETFs are funds that comprise a diversified portfolio of assets, including stocks, bonds, or commodities, and are traded on stock exchanges, similar to regular stocks. Their cost structure is dynamic and fluctuates throughout the trading period, dissimilar to mutual funds, where NAV is shown at the end of the day. ETFs are famous for their low expenses, liquidity, and seamless trading experience.
How Do ETFs Work?
ETFs are designed to track an index and generate returns that closely align with the benchmark set for the day. The returns are slightly lower than those of other investments due to the expense ratio included. However, ETFs tend to yield returns closer to the benchmark. For example, in the context of NIFTYBEES, ETFs yield returns nearly equivalent to those of the Nifty 50.
How Do International ETFs in India Work?
Like any other ETF, international ETFs in India aim to replicate the returns of investments in their benchmark countries. The international ETFs purchase stocks directly and hold them for investors in India, such as the NASDAQ 100.
What is iNAV?
Most investors purchase ETFs at the cost they are trading on the stock exchange. However, the important thing is Indicative Net Asset Value (iNAV), which is a real-time estimate of an ETF’s value, calculated throughout the trading period with the help of the latest market costs of its underlying assets.
This helps the investors to find out whether an ETF is trading at a high cost or a discounted cost.
The RBI Limit
The Reserve Bank of India (RBI) has set a $7 billion limit on international investments for the overall mutual fund industry with the aim of managing the foreign exchange reserve. Moreover, there is a $1 billion limit for every asset management company.
International ETFs Price
The table below shows the prices and iNAV of International ETFs in India as of April 22, 2025.
| Ticker | iNAV | Price | Difference (%) |
| MAFANG | 112.5 | 91.08 | 23.52% |
| MAHKTECH | 21.32 | 17.92 | 18.97% |
| MON100 | 165.99 | 148.11 | 12.07% |
| HNGSGBEES | 376.96 | 325.01 | 15.98% |
| MONQ50 | 67.51 | 61.29 | 10.15% |
According to the table above, MiraeAsset FANG+ETF is trading at a premium of over 23%. This means that if the price is correct when you invest in an ETF today, you have to face a 23.5% loss. Similarly, the Motilal Oswal NASDAQ 100 ETF is trading at a 12% premium, which is the highest deal in India.
Why are International ETFs in India at a Premium?
International ETFs in India are trading at significantly higher costs because of multiple regulatory and market factors, including:
RBI’s Overseas Investment Limits
The RBI sets a limit of $7 billion for international investment, with a $1 billion cap for asset management companies. This limitation is imposed to manage India’s Foreign Exchange Reserves and stabilize the currency, which was disrupted by the industry in February 2022.
In turn, asset management companies cannot develop new ETF units by buying additional international assets or restructuring the supply of ETF shares.
Supply-demand Imbalance
Since there is no creation of new units, the supply of International ETF shares is fixed. In the meantime, there is an increasing demand for global exposure among Indian investors.
Basic economics: limited supply + high demand = higher costs. This influences ETF.
For example, you are investing one lakh in MAFANG ETF at Rs 112.50 per unit. Whereas, 23.52% premium over the iNAV, which is around Rs 91.08. You purchased more than 889 units. If the underlying assets increase by 10% in a year, the iNAV reaches Rs 100.19 per unit. Therefore, if the premium remains steady, the market price will be Rs. 123.75.
The portfolio value will be 889units * Rs 123.75= 109,994
The effective return will be Rs 9,994/100,000= 9.99%.
What to Do?
Check the premium– You, as an investor, should compare the market price to the iNAV before investing in international ETFs in India.
Explore Mutual Funds – Search for international mutual funds, even when considering investments.
Concluding Thoughts
International market diversification can be a strategic direction, but not at any cost. If you are looking for international ETFs in India for global visibility, then you must check their iNAV. Even a minor difference should not be overlooked. When making an investment decision, consider alternative options by consulting with investment professionals.
Also Read:
