India’s push towards global portfolio diversification is running into an unexpected friction pricing inefficiency. Exchange-traded funds (ETFs) tracking overseas indices are currently trading at significant premiums to their indicative net asset values (iNAV), raising questions about market structure and investor awareness.

Recent market data highlights the extent of the distortion. Several globally linked ETFs listed in India are trading at premiums ranging from 8 percent to as high as 20 percent. For instance, the Mirae Hang Seng Tech ETF was quoted materially above its iNAV, while similar gaps were visible in products tracking US markets such as the S&P 500 Top 50 and Nasdaq indices. These discrepancies indicate that investors are often paying significantly more than the underlying value of the assets they are buying.

At the core of this phenomenon lies a structural imbalance between demand and supply. Indian investors, particularly in the post-pandemic period, have shown a growing appetite for global exposure, driven by strong returns in US technology stocks and international indices. However, the supply of ETF units has not kept pace with this surge in demand.

Unlike domestic equities, where liquidity is deeper and price discovery is more efficient, global ETFs in India operate under constraints that limit fresh unit creation. Mutual funds have already hit regulatory ceilings on overseas investments, which currently cap total industry exposure. This restriction effectively prevents fund houses from issuing new units to match incremental demand. As a result, ETF prices are being bid up in the secondary market, decoupling from their intrinsic values.

This pricing distortion is not limited to ETFs alone. Fund of Funds (FoFs), which invest in these ETFs, are also reflecting elevated valuations, in some cases trading at premiums of 15–20 percent over their underlying assets. This layered inefficiency compounds the risk for investors who may not fully understand the pricing mechanics.