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International ETFs trade at premium of over 25%

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  Published in Stocks and Investing on Monday, October 13th 2025 at 11:51 GMT by The Financial Express
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International ETFs Trade at Premiums Over 25% – What It Means for Indian Investors

A recent wave of investor enthusiasm has pushed the premiums on international exchange‑traded funds (ETFs) to unprecedented levels. According to data from the National Stock Exchange (NSE) and a series of market analytics, the collective premium on a basket of global ETFs has topped 25% relative to their net asset value (NAV). The surge is being driven by a combination of heightened demand for global diversification, limited domestic alternatives, and favourable macro‑economic conditions. The implications are wide‑ranging for both retail and institutional investors who are increasingly using these vehicles to gain exposure to world markets.

How Premiums Work in the ETF World

An ETF’s NAV represents the per‑share value of the underlying portfolio of assets, calculated at the close of each trading day. When the market price at which the ETF trades on an exchange diverges from this NAV, a premium (market price higher than NAV) or discount (market price lower than NAV) arises. Premiums above 20–25% are considered “high” and can erode returns for buyers if they purchase the ETF at a price significantly above the value of its underlying holdings. Conversely, a discount may represent an attractive buying opportunity, but may also reflect liquidity or demand issues.

The recent 25%+ premium is not a one‑off occurrence. Over the past six months, the average premium on international ETFs in India has climbed steadily from around 12% to its current peak, spurred by inflows that far outstrip the limited supply of newly listed funds. The phenomenon has been amplified by the fact that many of the most popular global ETFs are “non‑traded” in India, meaning they cannot be redeemed for cash on the exchange and thus become “locked‑in” instruments that traders can only buy and sell on the secondary market.

Key Drivers Behind the Surge

1. Global Diversification Appeal

In a world where the Indian market remains sensitive to domestic policy shifts, a sizable segment of investors is looking to spread risk internationally. ETFs that track the MSCI World, MSCI Emerging Markets, or the S&P Global 100 provide instant, low‑cost exposure to a basket of global equities. The sheer number of new international listings on the NSE – including popular ETFs like iShares MSCI Emerging Markets ETF, Vanguard FTSE All‑World ex‑US ETF, and SPDR MSCI ACWI ETF – has made this strategy more accessible than ever.

2. Limited Domestic Alternatives

While India has a vibrant mutual‑fund industry, it lacks the breadth and depth of international ETFs. Existing domestic ETFs primarily focus on local indices, such as the Nifty 50 or the Nifty Next 50, and many investors find these offerings too narrow for their long‑term diversification plans. The limited supply of global ETFs in India means that demand outstrips supply, driving up premiums.

3. Regulatory Changes and Market Structure

SEBI’s recent permission for listing international ETFs on the NSE under a “specialised fund” structure has unlocked new investment possibilities for Indian retail and institutional investors. However, the structure imposes certain restrictions, such as a mandatory holding period and limits on daily redemption, which reduce liquidity relative to domestic ETFs. This restricted liquidity contributes to the premium.

4. Macroeconomic Factors

The U.S. Federal Reserve’s recent policy shifts and the continued volatility in global equity markets have heightened the appeal of diversified, liquid vehicles. Simultaneously, the INR’s volatility against the USD has added another layer of complexity, as many international ETFs are priced in dollars. Investors willing to accept a premium in Indian rupees are betting on the dollar’s strength relative to the rupee.

Impact on Retail Investors

For a retail investor, a 25% premium is a double‑edged sword. On the upside, owning international ETFs provides exposure to a wide range of economies, sectors, and asset classes without the cost and complexity of managing a global portfolio. On the downside, the premium erodes potential returns, especially in a bull market where the underlying indices are rising. Analysts advise that investors should be mindful of the premium when evaluating potential returns and consider timing their entry to capture lower premiums.

In addition, the lack of a redemption mechanism means that once invested, a retail investor cannot exit at NAV but must rely on secondary market prices. This is a significant consideration in a market that may experience temporary price dislocations.

Institutional Perspective

Institutional investors, such as pension funds and endowments, are also feeling the premium pressure. While they can use hedging strategies and structured products to manage currency risk, the high premium reduces their net cost of acquiring international exposure. Many institutions are therefore diversifying across multiple ETF providers and may even consider alternative vehicles, such as open‑ended global mutual funds, when the premium reaches unsustainable levels.

The Road Ahead

The premium on international ETFs is likely to remain elevated for the near term unless there is a significant shift in supply dynamics. Potential catalysts that could alleviate the premium include:

• New Listings: More international ETFs could be listed on the NSE, increasing supply and liquidity.
• Redemption Mechanism: Introducing a redemption mechanism or a “dual‑exchange” model might improve liquidity and reduce premiums.
• Currency Stabilisation: A stronger rupee relative to the dollar could reduce the perceived risk and lower the premium.

In the meantime, investors—especially those who have started to build a global portfolio—should closely monitor premium trends, evaluate the underlying NAV performance, and consider the cost implications before committing additional capital.

Sources and Further Reading

• NSE International ETFs Overview (NSE website)
• SEBI Guidance on International ETF Listing
• Analyst Commentary on Premium Dynamics (Financial Express, Bloomberg, Reuters)

The rise in premiums underscores a pivotal moment in India’s investment landscape: a growing appetite for global diversification is reshaping the way investors approach risk and return. Whether this trend will reverse or deepen depends on supply dynamics, regulatory evolution, and macro‑economic forces that continue to shape the global investment environment.