Indian investors seeking exposure to US technology and broader American markets through domestic exchanges may be paying a hefty premium for convenience.
Several India-listed exchange-traded funds (ETFs) and fund-of-funds offering overseas exposure are trading significantly above the value of their underlying holdings. According to market participants, the premium in some cases ranges from 15% to 22%.
Popular products include:
- MON100, which tracks the Nasdaq-100
- MAFANG, which offers exposure to large US technology companies
- MASPTOP50, which tracks leading S&P 500 companies
These products allow investors to gain exposure to companies such as Apple, Nvidia and Microsoft through Indian exchanges.
However, investors buying such funds at current market prices may end up paying substantially more than the value of the underlying US assets.
Why are these funds trading above their value?
The premium traces back to restrictions imposed in 2022.
That year, the Reserve Bank of India (RBI) capped overseas investments by mutual funds. Fresh inflows into several international schemes were restricted after the industry approached the prescribed overseas investment limits.
With supply constrained, prices of some listed products drifted above their net asset values.
As a result, investors purchasing these funds on exchanges may be paying more than the actual value of the underlying US shares.
The alternative route
Indian residents can also invest abroad under the Liberalised Remittance Scheme (LRS).
The framework allows individuals to remit up to $250,000 a year for permitted foreign investments.
Through platforms such as:
- Vested
- INDmoney
- Interactive Brokers
investors can buy US securities directly.
Another option is to invest through International Financial Services Centre (IFSC) entities operating in GIFT City.
These routes provide access to overseas assets without the exchange-traded premium seen in some India-listed products.
Additional compliance requirements
Investing abroad through the LRS route requires certain formalities.
Investors need to:
- Open a foreign investment account
- Complete the prescribed documentation
- Disclose foreign assets while filing income tax returns, as required under law
Market veterans have long argued that investors should avoid paying significantly above an asset’s intrinsic value.
Products trading at persistent premiums have historically seen those premiums disappear when cheaper alternatives became available.
Examples cited by market participants include:
- The Spain Fund
- The Korea Fund
- The Germany Fund
- Grayscale Bitcoin Trust in the US
In some cases, premiums later turned into discounts.
What investors should check
Before investing in international products, experts advise investors to examine:
- The current market price
- Net asset value (NAV)
- Premium or discount to NAV
- Alternative investment routes
- Costs and compliance requirements
Understanding these factors can help investors avoid paying substantially more for the same underlying assets.
TL;DR
Some India-listed funds providing US market exposure are trading at premiums of 15-22% because overseas investment limits have constrained supply. Investors looking for international diversification can also use the Liberalised Remittance Scheme or GIFT City platforms to access US assets without paying such markups.
AI summary
- Some India-listed US-focused funds are trading 15-22% above their underlying value.
- RBI’s 2022 overseas investment limits contributed to the supply shortage.
- Investors can use the LRS route to invest directly in US securities.
- GIFT City platforms offer another avenue for overseas investments.
- Investors should compare prices with underlying NAV before investing.
