NSE cautions investors over pricey overseas ETFs as demand surges

The NSE on Wednesday cautioned investors against rising risks of investing in international exchange traded funds (ETFs).

It said several of these funds were trading at significant premiums to their underlying net asset values (NAVs), implying that investors were essentially buying international ETFs at elevated prices. Here are the key details.

* Prices of some ETFs investing in overseas securities have surged even as the NAVs of their underlying overseas holdings have remained broadly stable, NSE said.

* Premiums have widened sharply in recent weeks, with some ETFs trading roughly 65%-80% above the value of their underlying holdings at various points in September, according to publicly available market data.

* NSE attributed the divergence to supply constraints and regulatory changes. It said that Indian mutual funds have exhausted regulatory overseas investment limits, which has restricted the creation of fresh ETF units.

* The regulatory changes, which mandate that ETF price bands be linked to the previous day's NAV from April 1, 2027, could impact how such products trade relative to their underlying assets.

* Investors purchasing such units at steep premiums may be exposed to the risk of an abrupt fall in prices, unrelated to movements in the underlying securities, NSE said, urging investors to exercise caution.

* Assets in mutual fund schemes investing abroad rose nearly 55% year-on-year to about 485 billion rupees in August 2026, while investor folios increased more than 40%, according to AMFI data.

* The demand has been buoyed by the performance gap between Indian and overseas markets. Over the past year, the Nifty 50 has fallen about 8% and the Sensex about 9%, while the Nasdaq-100 has gained roughly 24%.
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