The Motilal Oswal Nasdaq Q 50 ETF closed at ₹246 on the BSE, more than twice its reported net asset value (NAV) of ₹120.05, highlighting a significant premium on its market price compared to the underlying assets, according to thehindubusinessline.com. This discrepancy exposes investors to paying substantially more than the actual value of the ETF’s holdings.
The divergence between the ETF’s market price and NAV arises because the market price is driven by supply and demand on the stock exchange, while the NAV reflects the per-unit value of the underlying assets. Normally, market makers arbitrage these differences by creating or redeeming ETF units, keeping prices aligned. However, this mechanism has been disrupted for several international ETFs, including this Nasdaq-linked fund, due to exhausted overseas investment limits for Indian mutual funds, which restricts the creation of new units.
This situation means investors are effectively paying a premium solely to gain exposure to the securities already held by the ETF, rather than benefiting from any appreciation in the underlying technology stocks. The premium is difficult to justify and increases the risk of losses unrelated to the performance of the ETF’s assets. Such pricing anomalies have drawn warnings from the National Stock Exchange (NSE) and BSE, underscoring the need for investor caution when purchasing international ETFs trading at large premiums.
The Motilal Oswal Nasdaq Q 50 ETF’s closing price on the BSE on Friday was ₹246, while its NAV stood at ₹120.05, a gap that investors should carefully consider before investing in overseas ETFs listed in India, thehindubusinessline.com reported.