New SEBI Price Band Framework Drives International ETFs to Premiums of Up to 96%

Capital markets regulator Securities and Exchange Board of India (SEBI) brought into effect a revamped trading and price-band framework for exchange-traded funds (ETFs) on September 7, 2026. While formulated to improve operational efficiency and curb pricing lags across domestic funds, the rule change has unintentionally compounded valuation risks for international ETFs listed on Indian exchanges.

Several overseas-focused ETFs have seen their market prices surge significantly above their indicative net asset value (iNAV). By midday on September 9, 2026, the Motilal Oswal Nasdaq Q50 ETF traded at an eye-watering premium of approximately 96% to its iNAV. Meanwhile, the Mirae Asset NYSE FANG+ ETF recorded a premium near 39%, and both the Motilal Oswal Nasdaq 100 ETF and the Mirae Asset Hang Seng Tech ETF hovered around 27% premiums.

Mechanics of the New Framework

Under the previous framework, stock exchanges derived the daily base price for ETFs using the net asset value (NAV) declared two days earlier (T-2) and applied a static ±20% price band.

Under the revised framework:

• The base price is now anchored to the ETF’s previous trading session (T-1) closing price, calculated using the 30-minute volume-weighted average price (VWAP).
• If no trading takes place during the last 30 minutes, the day’s last traded price (LTP) is used as the base. Only if an ETF sees zero volume throughout the day does the base revert to the latest available NAV.
• For equity and debt ETFs, trading starts with a dynamic price band of ±10%, which can be flexed up to ±20% following a mandatory 15-minute cooling-off period (shortened to five minutes during the final half-hour of trading).

Why International ETFs Are Trapped in a Premium Loop

The core issue stems from structural supply curbs. The Reserve Bank of India (RBI) and SEBI currently impose an overall industry-wide cap of $7 billion on overseas investments by Indian mutual funds, with an individual limit of $1 billion per fund house.

Because Indian fund houses hit these regulatory ceilings, asset management companies have long been barred from issuing fresh ETF units. Without the ability of authorized participants to create new units and execute classic arbitrage, relentless retail demand has decoupled exchange prices from fair value.

Under SEBI's previous rules, the circuit filters were tethered to the actual fund NAV, periodically capping runaway speculative market spikes. By switching the base price to the previous day’s VWAP market closing price, the new system resets the daily trading bands from an already inflated price. As circuit limits adjust off the premium rather than the NAV, market prices can continue compounding higher each day without any tether to underlying asset values.

What Investors Should Keep in Mind

Market analysts warn that Indian retail investors buying overseas ETFs at hefty premiums carry severe capital risk.

Key Takeaways for Investors:

• Check the iNAV Before Trading: Retail buyers should verify the live indicative NAV published on stock exchange portals before placing orders. Buying an ETF at a 20% to 90% markup means instant capital loss if pricing returns to fair value.
• Avoid Market Orders: Thin trading liquidity combined with dynamic bands can trigger execution at extreme prices. Investors should strictly use limit orders.
• Regulatory Correction Risk: If the central bank or SEBI enhances the overseas remittance limit, mutual funds will immediately resume unit creation. Such an event would instantly collapse exchange premiums toward fair NAV parity.
• Explore Alternate Overseas Routes: Retail investors wishing to gain global portfolio exposure without paying steep exchange markups can utilize the RBI's Liberalised Remittance Scheme (LRS) to invest directly in international funds and US-listed ETFs.

Tags: SEBI Motilal Oswal AMC Mirae Asset Mutual Fund RBI Nasdaq 100 Exchange Traded Funds