Why Are International ETFs Trading at a Premium in 2025? Understand the Importance of iNAV

Passive investing continues to gain popularity among investors seeking low-cost, long-term market exposure. One of the most preferred instruments for passive investing is the Exchange-Traded Fund (ETF). While ETFs offer significant advantages such as liquidity, diversification, and cost efficiency, international ETFs—particularly those offering global exposure—have recently been trading at noticeable premiums. But why is this happening? And what role does iNAV play in your investment decision? Let’s dive in.

What Are ETFs?

An Exchange-Traded Fund (ETF) is an investment vehicle that pools money from investors to buy a diversified portfolio of assets like stocks, bonds, or commodities. Unlike mutual funds, ETFs are traded on stock exchanges in real-time, with their prices fluctuating throughout the trading day.

ETFs are structured to track an underlying index, providing returns that closely mirror their benchmark, minus the expense ratio.

How Do International ETFs Work?

International ETFs function similarly to domestic ETFs but invest in overseas markets. They offer Indian investors access to global indices like the Nasdaq 100. These ETFs purchase and hold international stocks, providing Indian investors exposure to foreign economies and industries.

What Is iNAV?

While investors typically buy and sell ETFs at market prices, iNAV helps them assess if the ETF is trading at a premium or discount relative to its fair value.

Why Are International ETFs Trading at a Premium?

 Here’s why:

1. RBI’s Overseas Investment Restrictions

With these limits already breached, AMCs are unable to purchase additional foreign assets, thereby freezing the creation of new ETF units.

2. Supply and Demand Imbalance

While the supply of new ETF units remains restricted, demand for international diversification continues to grow among Indian investors. With limited supply and surging demand, ETF prices rise above their iNAV, creating a premium.

This dynamic explains why major international ETFs like the Mirae Asset FANG+ and Motilal Oswal Nasdaq 100 ETFs are trading at double-digit premiums.

Example: Impact of Premium on Returns

Assume you invest ₹1,00,000 in the MAFANG ETF, which trades at a 23.52% premium over its iNAV:

• Market Price: ₹112.50

• iNAV: ₹91.08

You buy about 889 units. Even if the underlying index rises by 10%, your effective return will be lower because of the premium you initially paid. If the premium narrows in the future, your returns could suffer even further.

Real-World Data (As of 22 April 2025)

Source: 1 Finance Research, Company Data

What Should Investors Do?

• Check the Premium: Always compare the ETF’s trading price to its iNAV. This information is available on AMC websites and broker platforms.

• Explore Mutual Funds: Consider international mutual funds still open for fresh investments.

• Seek Professional Advice: If in doubt, consult a qualified financial advisor to make an informed decision.

Conclusion

While international ETFs are an effective way to gain global exposure, understanding the concept of iNAV and the impact of premiums is crucial. A high premium can erode your returns and expose you to greater risks. Smart investing involves more than just market timing—it requires analyzing the real value you are paying for an asset. Always check the iNAV before investing in international ETFs to ensure you are not overpaying for your global aspirations.