BSE cautions investors as international ETFs trade at steep premiums to NAV
Limited overseas investment capacity has restricted creation of new units, potentially widening the gap between ETF prices and underlying asset values
The Bombay Stock Exchange (BSE) has issued a caution to investors regarding international exchange-traded funds (ETFs) that are trading at significantly higher prices than their net asset value (NAV). BSE warns that the market prices of these international ETFs could experience a sudden decline, even if the value of the underlying overseas securities remains stable.
The premium indicates that investors are paying more for an ETF unit than the actual value of the assets backing it. BSE attributes this situation to the full utilization of overseas investment limits available to mutual funds, which have restricted them from creating new units of international ETFs, leading to a limited supply and consequently pushing market prices significantly above the value of the underlying assets.
The exchange advises investors to exercise extreme caution and perform due diligence before purchasing such units, urging them to check the NAV available on the stock exchange or relevant websites or trading platforms before placing orders.
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