The BSE has issued a serious warning to investors who are investing in international ETFs because there is a risk of sudden price drops.
BSE noted that some foreign ETFs are trading at prices significantly higher than their actual value, or Net Asset Value (NAV). Investors making purchases without proper verification may incur losses.
According to BSE data, units of some international ETFs are being sold at a significant premium relative to their NAV, while the underlying fund's value has not undergone substantial changes. Thus, the price at which the ETF is bought can be much higher than its real value.
The main reason for such a high premium is the restriction on foreign investments. The limit set for the mutual fund industry regarding overseas investments has been completely exhausted. Because of this, the fund companies cannot create new ETF units. The combination of limited supply and growing demand has caused the market prices of these ETFs to rise significantly above the NAV.
BSE warned that investors purchasing units at a high premium are exposed to the risk of sharp price declines. It is worth noting that such a drop may occur not due to weakness in foreign markets, but as a result of the disappearance of the premium itself. If the restriction on foreign investments is increased in the future or new rules related to ETF trading appear, the premium of these ETFs may quickly decrease. As a result, when the difference between the market price and NAV shrinks, a strong corrective price movement is possible.
BSE advised investors to always check the latest NAV of any international ETF before placing an order. This information is available on the websites of the exchange, AMFI, and trading platforms. The exchange emphasized that it is not enough just to take advantage of the opportunity to invest in foreign markets; it is crucial to understand the difference between the real value of the asset and its market price. Buying at an inflated premium can subsequently lead to financial losses.
