Today, I was trying to purchase MON100 ETD through Zerodha Kite app. I got nudge saying that “There is no market-making in this ETF due to RBI Restrictions on overseas limit. ETF may be trading at above or below its fair value (iNAV).” Please check AMC website for iNAV before placing an order.
What does this means in simple terms?
Fresh inflows in international mutual funds and ETFs are stopped due to industry hitting the overseas investment limits specified by RBI. This has been explained in detail in this post: Everything you need to know about restrictions on new investments in international mutual funds and ETFs
As fresh inflows are not allowed, there is no creation of new units of ETFs, due to this prices of ETFs are trading at premium compared to their fair value (iNAV). You can this on the website of AMC: Motilal Oswal NASDAQ 100 ETF: Motilal NASDAQ 100 - Motilal Oswal
As you can see current iNAV is around 90, while the ETF is trading on the exchanges at 103, at a premium of around 14%.
Why the premium?
Because there isn’t new units created?
What will happen if/when RBI changes its mind?