International ETFs trading at premium compared to their NAV. Watch out before you buy
Many international ETFs are trading at a premium compared to their indicative intraday value (I - NAV) after the market regulator Sebi asked mutual funds to stop fresh subscriptions in their overseas ETFs from April 1.
Mirae Asset Mutual Fund recently issued an advisory that “Our international ETFs are trading at a significant premium since market makers are not allowed to create new units to cater to the demand due to restrictions on subscription of
Mirae Asset Mutual Fund recently issued an advisory that “Our international ETFs are trading at a significant premium since market makers are not allowed to create new units to cater to the demand due to restrictions on subscription of
international funds for the mutual fund industry by Sebi.”
Zerodha also tweeted and informed the investors that “Several ETFs investing in international securities are trading at a premium compared to their Indicative Net Asset Value (iNAV). This is because of restrictions on international investments due to these ETFs hitting overseas investment limits.”
As per the market regulator, the overall investment limit of $1 billion is about to be breached. Sebi asked mutual funds to value utilisation of overseas investment limits at the cost of acquisition and not as per current market prices.
Zerodha also tweeted and informed the investors that “Several ETFs investing in international securities are trading at a premium compared to their Indicative Net Asset Value (iNAV). This is because of restrictions on international investments due to these ETFs hitting overseas investment limits.”
As per the market regulator, the overall investment limit of $1 billion is about to be breached. Sebi asked mutual funds to value utilisation of overseas investment limits at the cost of acquisition and not as per current market prices.
When an investor purchases a mutual fund, they look at NAV and similarly, when they buy an ETF, they look at the market price of that particular ETF. The intraday value of an ETF is different from the last traded price (LTP).
When the regulator imposes restrictions on fresh inflows in the overseas ETFs, the creation of new units is not possible but the existing units can be bought and sold without any restriction or problem. A investor needs to check two important things before purchasing any ETF:
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