India’s global ETF market is witnessing significant turmoil. The market price of a global exchange-traded fund (ETF) has fallen by more than 20% in a single trading session for three consecutive days.

The case in point: Motilal Oswal Nasdaq Q 50 ETF (MONQ50), an open-ended scheme tracking the Nasdaq Q-50 TRI, has an NAV of Rs 120.05. However, its units traded at Rs 202.92 on September 23, meaning MONQ50 units are still available at a premium of about 69%.

On September 22, one unit of MONQ50 closed at Rs 253.64, reflecting a crash to the 20% lower circuit.

But this isn’t just a one-day story. “The ETF closed at Rs 396.30 on September 18 against an NAV of roughly Rs 118, implying a premium of around 235%. It then fell 20% on September 21 and another 20% on September 22. Even after that correction, the ETF was trading at Rs 253.64 against an iNAV of around Rs 120, still a premium of roughly 111%,” says Viram Shah, Founder and CEO, Vested.

The underlying index that MONQ50 tracks has gained over 35% in the last one year. The market price of MONQ50, however, shows a gain of over 123% over the same period, since that figure includes the premium. That premium is now fading fast, with the fund’s return down 26% over the last week.

And MONQ50 isn’t alone. Other global ETFs are showing similar price patterns, with their market price much above their NAVs, including MAFANG (Mirae Asset, tracking NYSE FANG+), MON100 (Motilal Oswal, tracking Nasdaq 100), MASPTOP50 (Mirae Asset, benchmarked to S&P 500 Top 50), and HNGSNGBEES (Nippon India, tracking the Hang Seng index).

So what’s really going on in India’s international ETF space, and why did prices drop so abruptly?

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Two Regulatory Triggers Behind the Crash

There are two reasons behind this, and both are regulatory in nature. One dates back to 2020-21, the other is a recent rule change.

The Securities and Exchange Board of India (SEBI) has placed restrictions on how much fund houses can invest overseas. They can’t invest abroad as freely as they’d like.

Initially set in November 2020 and revised in June 2021, Indian mutual fund houses can invest up to $1 billion each, within an overall industry cap of $7 billion set by SEBI.

Even global ETFs fall under these limits, with overseas ETFs capped at a maximum investment of $300 million per fund, within a total industry limit of $1 billion. “Once that limit was largely exhausted, AMCs could not freely create fresh units of international ETFs. Normally, when an ETF trades significantly above NAV, new units can be created and sold into the market, which helps close the gap. Here, that arbitrage mechanism was constrained,” says Viram Shah, Founder and CEO, Vested.

Second, SEBI’s revised ETF price-band rules, effective from September 7, 2026, change the framework for price deviation from NAV.

Previously capped at approximately 20%, the new rules set price bands based on the previous day’s closing market price rather than NAV. Once an ETF started trading at a premium, that higher market price could then become the base for the next session, compounding the gap further.

Why the Premium Suddenly Reversed

The premium-to-NAV was a regular feature of India’s international ETFs. So why did it crash? “That coupled with fixed supply, strong demand and the new price-band mechanism, allowed the premium to compound rapidly. Once investors recognised how disconnected the market price had become from NAV, the same mechanism worked in reverse,” says Shah. A similar price drop may occur with any other global ETFs as well.

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The Bottom Line

The international ETF industry provides a cost-effective opportunity to Indian investors to diversify their portfolio globally. However, there are bottlenecks.

A capped overseas investment limit choked off the usual arbitrage mechanism, while SEBI’s new price-band rule let the premium build on itself, until investor sentiment flipped and the same mechanism worked in reverse.

For Indian investors holding these funds, the sharp correction is a reminder that trading price and NAV can diverge significantly when structural constraints are at play, and premiums built on constrained supply can unwind just as fast as they formed.

Is it time to buy as premiums have crashed? No. “A falling premium also does not automatically make an ETF cheap. A premium falling from 235% to 111% is still a very substantial premium, and still more than double the price of buying the same index abroad,” says Shah.

Existing investors who bought these funds at a premium, and are now watching the market price crash, are stuck holding the loss. New investors need to tread carefully too, and look beyond the premium to a fund’s actual NAV, or better still, its iNAV, the real-time indicative value of an ETF during market hours, based on the current market value of its underlying holdings. iNAV usually stays close to NAV, but can diverge sharply from the market price.

Also, take a close look at the underlying global index before you invest. If you’re convinced its constituents will perform well, it’s worth a shot, but only if the market price is close to NAV. And if you’d still rather not pay a premium over NAV, there are alternatives.

Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investment in foreign securities involves significant risks, including currency fluctuations, different financial reporting standards, and varying regulatory environments. Investors must conduct their own independent due diligence and seek advice from a registered financial advisor. Financial Express is not responsible for any decisions made based on this information.