Nasdaq ETFs are no longer expensive. Time to invest?

• Geographical diversification—simply put, investing in global markets like the US—can help you tap into fast-growing companies and sectors that don't exist in India. Think Big Tech: Nvidia, Google, Facebook.
  
• The easiest way to do this? Through mutual funds and ETFs (exchange-traded funds) investing in overseas securities and indices, such as US's Nasdaq.
  
• But there is a catch. These funds and ETFs can only invest a limited amount overseas. Once that limit is hit, they halt new/existing investments. (We'll look at this in greater depth in the following section).
  
• That's why many Indian investors have been buying these ETFs listed on Indian stock exchanges.
  
• However, due to strong demand, US-focused ETFs (like Nasdaq ETFs) have been trading at a premium—meaning they cost more than their actual value. Not too long back, some Nasdaq-based ETFs were trading a whopping 24 per cent above their actual NAV (net asset value) .
  
• But there's some good news for the savvy investor. In the last few days, the premium has subsided. Meaning, this may be a good time to invest in Nasdaq-focused ETFs .

But first, let's understand why Nasdaq ETF premiums were high and how buying them a few months back would have burnt a hole in your pocket.

Why were Nasdaq ETFs so expensive?

The Reserve Bank of India (RBI) has set a $7 billion overall limit for mutual funds to invest in foreign securities. As this limit approached its cap in early 2022, SEBI directed fund houses to stop accepting fresh investments into such schemes. With these restrictions in place, ETFs were unable to issue new units, leading to a scarcity of units and limited supply for investors.

In addition, there is a separate $1 billion sub-limit specifically for investments in overseas ETFs. This threshold was also close to being breached in early 2024, prompting SEBI to impose a similar restriction from April 1, 2024. As a result, Funds of Funds (FoFs) that previously invested in overseas ETFs could no longer do so. Their only alternative was to invest in existing ETF units available in the secondary market, further intensifying demand and contributing to the premium pricing of such ETFs.

In short, a supply crunch met strong demand — and investors ended up shelling out a premium to get in.

The numbers back it up. These Nasdaq-based ETFs didn't just flirt with premiums — they were living in premium territory, especially after the cap came into play.

Take the Motilal Oswal NASDAQ 100 ETF's example. Since April 1, 2024 (when the industry hit the regulatory cap for investing in overseas ETFs), it has traded at a premium of over 5 per cent about 33.7 per cent of the time.

It gets even wilder with the Motilal Oswal NASDAQ Q50 ETF. It has been trading over the 5 per cent premium mark 50 per cent of the days since April 1, 2024.

Why buying ETF at premium is bad idea

Here's the catch with ETFs. Our returns depend on the price at which you buy and sell, not the NAV of the ETF.

Take this real-life example. On December 31, 2024, the Motilal Oswal NASDAQ 100 ETF was trading at Rs 214.2, while its NAV was only Rs 175.7 — that's a 22 per cent premium. Fast forward to May 13, 2025, and the premium has disappeared. The result? If you had invested Rs 1 lakh at that inflated price, your holding would now be worth just Rs 82,391 — a 17.6 per cent loss. All this while, the actual Nasdaq 100 index (as reflected by the NAV) gained 0.5 per cent.

Ditto with Motilal Oswal NASDAQ Q50 ETF. On July 19, 2024, the ETF was trading at Rs 78, while its NAV was only Rs 62 — a 25 per cent premium. Fast forward to May 13, 2025, and the premium has deflated to just 1.8 per cent. Which means, based on the NAV, your Rs 1 lakh investment should've grown to Rs 1.13 lakh — a sweet 13.5 per cent gain. But because you bought at a 25 per cent premium, your investment would actually be worth just Rs 92,412 — an 7.6 per cent loss. That's right, you lost money even though the fund's actual value (NAV) went up. That's the pain of paying a premium.

The good news for Indian investors

Remember, we mentioned that these premiums have shrunk in recent days? That's right, the Nasdaq ETF's market price and NAV have almost converged.

With premiums finally cooling off, now's a much saner time to consider Nasdaq-based ETFs.

That said, some other US-focused ETFs, like Mirae Asset NYSE FANG+ ETF and Mirae Asset S&P 500 Top 50 ETF, are still trading at steep premiums—13.3 per cent and 15.4 per cent, respectively (as of May 13, 2025).

So, before you invest, keep a few things in mind:

• Always check the NAV before buying. Even better, look at the iNAV (intraday NAV), which gives a more real-time estimate. Just note that for international ETFs, iNAV is often based on the previous day's closing prices of the underlying stocks.
  
• Steer clear of high premiums. If the ETF is trading more than 5 per cent above its NAV, hit pause. You'd be paying more than it's worth—and when prices and NAVs eventually realign, your returns could take a hit.

Bottom line

International ETFs can help you access the world's top tech companies—but timing matters.

Don't just track the market. Track the premium. Because in the ETF world, what you pay can matter just as much as what you buy.\

Also read: Nasdaq grows 9%. My ETF grows just 1.7%. Is this a scam?