Nasdaq 100 ETF, FANG Funds: Indian Investors Pay 20% Premium For US Market Exposure; What Should You Do?

'A better alternative is to take LRS route and take US equity exposure directly through an international broking platform such as Interactive Brokers or others,' says an expert.

Indian investors seeking exposure to US equities through domestic exchange-traded funds (ETFs) are facing a sharp pricing distortion, with some popular international ETFs trading at 18-20 per cent premiums to their underlying asset values amid persistent liquidity constraints.

Market participants said ETFs such as Motilal Oswal Nasdaq 100 ETF and Mirae Asset NYSE FANG+ ETF have recently witnessed thin sell-side availability, resulting in widened gaps between market price, net asset value (NAV), and indicative NAV (iNAV).

Currently, Motilal Oswal NASDAQ 100 ETF is trading at Rs 289.77 apiece on the NSE, which is nearly 20 per cent premium over its NAV of Rs 241.48.

The issue highlights a growing challenge in India’s international fund segment, where strong retail demand for US technology-linked products has collided with regulatory limits and restricted fresh overseas investment capacity in recent years.

Ashwini Shami, president and chief portfolio manager of OmniScience Capital, said investors should be cautious while entering such products at elevated prices.

“US equity ETFs in India are trading at 18-20% premium to the NAV, indicating that the investors will have to pay a huge premium to take exposure to the US stocks if they choose the ETF route. We believe a better alternative is to take the LRS (liberalised remittance scheme) route and take US equity exposure directly through an international broking platform such as Interactive Brokers or others. One can buy either an ETF for the full market exposure, but then one is exposed to overvalued stocks and cannot change the ETF composition. Alternatively, one could buy a curated portfolio to avoid overvalued stocks and customise the holdings for specific potential high growth opportunities at reasonable valuations," Shami said.

Why the Premium Exists

ETFs are designed to trade close to the value of their underlying holdings through an arbitrage mechanism. However, when the creation of new units becomes constrained or market makers face operational limitations, supply may fail to keep pace with investor demand.

That can push exchange prices well above NAV, meaning investors buying in the secondary market may be paying substantially more than the actual value of the underlying portfolio.

For example, if an ETF’s NAV is Rs 100 but units trade at Rs 118-120, new buyers effectively pay an immediate premium that may erode if pricing normalises later.

What Investors Should Watch

Experts say investors should monitor current market price versus latest NAV, indicative NAV (iNAV) during trading hours, bid-ask spreads and available volumes, tracking error and liquidity trends, and whether premiums are temporary or structural.

Key Risk

While US-focused ETFs remain a convenient route for diversification, entering at a large premium can reduce future returns even if US markets continue rising. Investors may benefit more from waiting for better price discovery rather than chasing scarcity-driven valuations.