ETF with high NAV / Market Price difference

Hi All,

I have been trying to buy Motilal Oswak’s Nasdaq 100 ETF for the past few days, but it seems that this ETF is highly illiquid, so my orders did not go through.

And now after going through the AMC’s website, it seems that the ETF is trading (i.e., whenever it is traded, at low volumes daily) at a significant premium to its NAV.

The NAV according to Motilal Oswal’s website is around Rs. 482. The last traded price for the ETF, according to Kite, is around Rs. 571.

Now, I am not an expert, but isn’t this a significant arbitrade opportunity for people who can take advantage of this difference? Or else, what am I missing?

I am not an active trader - I am more of a long term investor; so I personally don’t know how to exploit this, i.e., if it can be exploited. For example, I tried to find ways to buy put options on this ETF, but could not find any options on Kite. And I don’t have the resources to make the arbitrage trades directly: I think only Authorized Participants (APs) can do that?

Can someone more knowledgeable explain what is going on?

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I did gave the request of same MO Nasdaq 100 ETF at a premium price at Zerodha and thank god it didn’t go through & I cancelled the request in an hour. I am trying to find the answer as well why there is a big difference between NAV and price.

HDFC securities is listing the price = NAV
Zerodha & even Motilal oswal official site shows higher price. Don’t know how do I get NAV price on Zerodha.
Called Motilal Oswal, they said open an account Trading & demat account with us we will give you the NAV price. Can’t really trust.

An ETF has 2 components. A NAV and the price. The NAV is nothing but the value of all the underlying assets minus liabilities divided by the number of units. The price is what the units are trading in the market.

What you are looking at is the NAV on the MOSL site and the price on Kite.
A difference of Rs 87.7. This is due to the illiquidity of the ETF. Today just 1,286 units of the ETF were traded.

Yes, it is. The way ETFs work are, the fund house appoints market makers/authorized participants to ensure the spreads aren’t too wide. The market maker offers both the bid and the ask and pockets the difference. When an ETF is launched, the AMC defines the size of something called as a creation unit. This unit size is determined in proportion to the underlying index. The idea if you were to give one unit of a creation unit is given to the AMC, you should receive all the shares comprising an index in the same proportion.

This works through a creation and redemption mechanism. If the ETF is trading at a premium, then the market maker will sell the ETF in the open market to push down the price. Where does he get the units? He deposits the shares making up the underlying index to the AMC which in turn gives the market maker the ETF units which he, in turn, sells it on the open market to take advantage of arbitrage opportunities.

So, market maker keeps creating and redeeming units based on the NAV, demand and supply thereby reducing the spreads. So if you were to take advantage of the opportunity, which isn’t really feasible, you will have to deliver the shares of the NASDAQ index equivalent to 100,000 units of N100 ETF which makes one creation unit. You can then sell it on the exchange and pocket the difference.

Now, why the difference in NAV of MOST N100?
Simple answer is liquidity and probably the lack of active market makers in the unit. You can check the creation/redemption activity of the ETF here and you can see that the last activity was on June 29th. Also, Motilal AMC isn’t really focussed on their ETF busniess. The CEO of Motilal AMC, Aashish P. Somaiyaa in an interview with Livemint called their ETF business, quote

Another deviation is the ETF business, although we are not growing it.

ETFs aren’t really a popular mode of investing. Except for a few Nifty 50 ETFS, all of the remaining ETFS are illiquid. Index funds are better of way investing.

If you still wish to have internation exposure in your porfolio, you can invest in mutual funds which have global exposure. I had compiled a list of funds which invest globally


Thanks Bhuvanesh for the long reply. Worth reading every bit of it. Eye-Opener. I was thinking to buy this since a month, now it’s not happening.

I think in coming 5 years Facebook will give a good CAGR as compared to other stocks in Global funds. Looking forward for the funds now who have a highest allocation in FB with good overall return in past.

@Bhuvan - Thank you for the detailed response.

I have since moved on to mutual funds with international exposure, as you suggested. This meets my objective, although I really liked the concept of an ETF tracking a broad range index like the NASDAQ 100.

And I still don’t get why the market makers / APs are not finding this difference as an arbitrage opportunity to make free money. Are there other issues involved, like taxes or additional costs for international capital transfers, which makes the ETFs fairly valued as they are traded now?

Ya, it does. :slight_smile:

I’d assume so. We’ll try doing a webinar on ETFs with a fund manager from one of the AMCs. Sounds like a nice topic.

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Are you saying that buying ETF at higher arbitrage is an opportunity or opposite ?
Why would anyone buy at higher arbitrage & what is free money :neutral_face: ?

I don’t know why HDFC here shows only 1 price which is at lower side & almost equal to NAV

And today N100 Nav is 971.40 and Price is 985.53. Volume traded is 63,377
Things have improved, haven’t they?