BackWhy Mirae Asset MF is cautioning its ETF investors?
Restriction on market makers is causing overseas ETFs to trade at premium to i-NAV
PremiumMirae Asset Mutual Fund (Mirae Asset MF) has cautioned investors looking to purchase units of its overseas exchange-traded funds (ETFs), noting that these ETFs are currently trading at a premium.
This is due to restrictions on market makers, which prevent them from buying fresh ETF units from the fund house and selling the same on the exchanges.
On 4 January, Mirae Asset MF had suspended subscriptions from large investors in its overseas ETFs – Mirae Asset NYSE FANG+ ETF, Mirae Asset S&P 500 Top 50 ETF, and Mirae Asset Hang Seng Tech ETF.
Also read: Sebi asks funds investing in overseas ETFs to stop taking fresh money from April
There was still some room left for market making, which eventually got exhausted in March, as notified by Mirae Asset MF.
Swarup Mohanty, CEO of Mirae Asset MF, in a tweet, said the latest advisory was prompted by the premiums on the overseas ETFs compared to their indicative net asset values (i-NAVs), which reflect the ETFs' fair market value.
The role of market makers is to ensure that there's enough liquidity on the exchanges for ETFs by providing both buy and sell quotes at the same time.
Redemptions unaffected
The restrictions on market-making will affect new investors. Existing investors can still redeem their ETF units at values close to the i-NAVs.
This is because the current restrictions don’t stop market makers from buying units from investors on the exchanges and selling to the fund house.
International investment limits
These ETFs invest in securities on overseas exchanges, but the industry's $7 billion limit for overseas investments was hit on 1 February, 2022. Subsequently, markets regulator Securities and Exchange Board of India (Sebi) allowed fund houses some flexibility to invest in international securities up to the level of redemptions seen in their international funds. However, these enhanced limits were also exhausted later for certain funds.
Also read: ‘ETFs in debt have a huge potential for investments’
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