Buying US market ETFs in India: Is it safe to pay a 12% premium over NAV?

Paying a massive premium just to get international exposure is a dangerous trap that will drag down your long-term returns. Because the RBI capped the mutual fund industry overseas investment limit at $7 billion no fresh units are being created for these funds and hence some ppl are looking at these ETFs at much higher prices.

High demand has pushed these secondary market ETFs to trade at premiums of 12% to 15% above their actual Net Asset Value. You are blindly paying Rs 115 for an asset that is fundamentally only worth Rs 100. When the limits eventually open up or market dynamics shift that premium will collapse and instantly wipe out a chunk of your capital.

Do not clutter a smaller portfolio with expensive international funds just out of fear of missing out. Wait until your portfolio is sizable enough to justify the complexity.

When you are ready you can use the LRS to buy foreign stocks or ETFs directly. Just be mindful of the forex charges and platform costs when taking the LRS route. For HNIs and NRIs investing via funds based in India GIFT City is becoming a highly lucrative and tax-efficient alternative.

Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.