Global ETFs: Why Investors Panic-Pay More

Imagine walking into a store to buy a t-shirt priced at Rs 1,000. But when you get to the billing counter, you willingly pay Rs 1,200 because everyone else is queuing up, and you’re worried you’ll miss out. That’s exactly what’s happening in India’s global ETF market today.

As Kirtan Shah, Founder & CEO of Credence Wealth, explains, "People are paying 15-18% more than what the actual value is — and it’s clearly visible." The reason? A unique combination of regulatory caps, investor FOMO, and India’s long-term currency depreciation trend.

Here’s what’s happening. The Reserve Bank of India currently caps the total amount Indian mutual funds can invest in overseas markets. Shah breaks it down: "There is a $7 billion limit at the industry level beyond which you can't invest in international markets, and then there is a $1 billion limit on the ETFs."

With no new ETF units being created and demand still strong, prices of existing ETFs have shot up in the secondary market. For example, Shah points out that the Mirae Fang is trading around a 19% premium, and the Mirae Hang Seng is trading at a 15% premium. 

This means that if you’re buying a global ETF today, you may already be down 15-20% before the market even moves.

Despite these inflated prices, demand continues to surge. "Now because there is so much demand to buy the global markets, people are willing to pay that premium," says Shah.

However, these premiums can disappear in an instant. "The day RBI or SEBI comes out and says that I am opening up this limit, you will see how this 18% premium that it is trading at will come down to 5% premium," Shah warns. So even if global markets do well, you may not see gains — because the premium you paid could evaporate overnight.

The risk doesn’t stop at paying extra. Global market corrections can amplify your losses.

For example, if the Nasdaq tomorrow cracks 10% and you have Indian investors that are also selling those ETFs very quickly, that 18% premium will turn into a nightmare, and the effective loss will be 18% plus 10%.

That’s a potential 28% loss — without any fault of your global stocks’ fundamentals.

One of the biggest reasons Indian investors are desperate to buy global ETFs is to hedge against the rupee’s long-term fall. And they aren’t wrong.

In 2000, the rupee stood at 45 per US dollar. Fast forward to March 2025, and it hovers around 85.50 per dollar. That’s an average annual depreciation of approximately 3% over 25 years. In fact, in just the last six months (Oct 2024 to March 2025), the rupee weakened by around 3.3%.

Shah sums it up, saying, "One of the easier ways to hedge against rupee depreciation is to invest in assets which are dollar-denominated."

But overpaying for global ETFs defeats the purpose. The rupee may depreciate, but the upfront premium you pay can eat away at the benefits.

Now, you don’t have to overpay. "There are close to 23 active funds or FOFs in which there is still a limit open for you to invest," Shah points out. These funds let you invest at Net Asset Value (NAV) — without the secondary market premium.

The LRS route allows individuals to remit up to $250,000 per financial year abroad for investments. But this path is better suited for larger investors and comes with extra costs.

"If your investment is a smaller amount, like less than 10 lakhs, then there is a platform fee that you pay, or a broking that you pay, and a currency conversion cost that you pay. So you’re taking on a 2-3% cost," says Shah.

For bigger ticket investors, LRS has another condition: "There is a 20% TCS tax collected at source if you do more than 10 lakhs globally," he explains. This tax is refundable at the time of filing returns but ties up liquidity.
Apart from global equity, gold remains a tried-and-tested hedge. As he points out, "In Indian rupee terms, gold has delivered a 3.2% return higher than gold in dollar terms."

The temptation to chase global markets is understandable, especially when the rupee has been in long-term decline. But paying a 15-20% premium on ETFs is not the solution.

Shah sums it up well, saying, "You want to invest because that asset will give you the returns that you are expecting — and not because you will make 3% more because of depreciation."