The Motilal Oswal Nasdaq Q50 ETF experienced an extraordinary surge of 41% in just one week, rising from ₹141.99 to ₹199.89 between September 4-10. According to Value Research data, this dramatic increase occurred even as the value of the underlying US stocks in its portfolio declined by 2.6% over the same period. The ETF's market price has moved significantly above its net asset value (NAV), with the premium reaching 72.8% by September 10, compared to a more modest 19.5% premium on September 4. This surge reflects the broader trend affecting overseas ETFs, with more than 20% of global ETFs currently trading at premiums above their net asset values, as warned by Mirae Asset Investment Managers. The premium situation has since escalated further, with the ETF closing at ₹275.28 on September 16, representing a 135.9% premium over its NAV of ₹116.69, making it the widest gap any Indian international ETF has traded at.
The sharp price movement coincided with significant regulatory changes affecting ETF pricing mechanisms. According to Motilal Oswal Mutual Fund, the price band determination framework shifted from using NAV from two trading days earlier to using the previous day's traded price as the reference point from September 7. This change created a substantial impact for the Q50 ETF, which was already trading at a premium. As reported by Motilal Oswal, under the previous mechanism, the ETF could have closed at no more than ₹142.60 on September 7 and ₹142.48 on September 8, while the new framework allowed ceilings of ₹170.32 and ₹196.91 respectively. The revised ETF price-band rules, covering base price, price bands, call auctions and close-out procedures, now peg prices to the previous day's closing market price rather than directly to NAV, allowing premiums to compound session after session without any forced correction back to the 20% ceiling that used to apply. The ETF witnessed unprecedented trading activity, with approximately ₹43 crore in trading volume on September 9, compared to its average daily volume of around ₹1.4 crore in the previous period.
The current premium situation stems from India's overseas investment limits, which were first flagged by Mirae Asset Investment Managers back in January 2024. According to The Financial Express, SEBI restricts fund houses from investing overseas without upper limits, with each Indian mutual fund house allowed to invest up to $1 billion each, adhering to the overall industry cap of $7 billion. For overseas ETFs specifically, mutual funds can invest up to $300 million per mutual fund within the overall industry limit of $1 billion. These caps have forced Mirae Asset Investment Managers to pause direct subscriptions into certain overseas ETF schemes, making ETF units continuously created and redeemed based on investor demand rather than freely available. Without the normal supply of new ETF units, the process that normally keeps ETF prices aligned to NAV stops working properly, creating the current premium environment. The structural constraint of India's overseas investment limits since April 2024 has created a supply-demand imbalance that amplifies price movements, with the ETF's market price rising ₹159 for every ₹275 invested, representing nothing but a place in a queue with no underlying company, earnings, or dividend value.
The Mirae Asset Investment Managers advisory warns that the gap between ETF prices and actual underlying values may increase due to recent SEBI changes. The fund house advises investors to check ETF market prices against their indicative NAV (iNAV) before placing orders, published live on fund house websites, and avoid buying units at steep premiums to that iNAV. As noted by The Financial Express, losses can happen even without underlying index falls, simply because inflated premiums correct themselves. The advisory emphasizes that premiums do not last forever, and when they shrink back toward NAV, investors holding at inflated prices could see losses even if overseas indices or securities themselves have not fallen. The transition from current approach to T-1 closing NAV basis from September 7, 2026, aims to align base prices more closely with actual underlying values instead of relying on market-price-derived references. Recent market data shows the correction process has begun, with the Motilal Oswal Nasdaq Q50 ETF falling 4.1% in market price during the week ending September 16, while the underlying shares inside the ETF declined only 0.7%, demonstrating how fund holders are paying for the premium correction.
The premium situation creates significant disparities even among funds tracking the same index. Five Indian mutual funds track the Nasdaq 100, with four finishing the year within 1.5% of each other, while the fifth Motilal Oswal Nasdaq 100 FoF delivered a 53.4% return, nearly double the others. According to Value Research data, the Motilal Oswal FoF's return comprises 29.8% from the Nasdaq's actual performance plus an additional 23% from the ETF premium, with the fund valuing its holding at the ETF's market price rather than the underlying NAV. This premium is recorded as performance, creating a situation where investors in the Motilal Oswal FoF effectively own the Nasdaq index plus a ₹24,000 premium per ₹1 lakh invested, which could disappear if the ETF premium normalizes. The gap between ETF prices and actual underlying values has already started to unwind, with the Motilal Oswal Nasdaq Q50 ETF's premium declining from 72.8% on September 10 to 135.9% on September 16, though it remains significantly above the 20% ceiling that used to apply under the previous framework.
