“We currently cannot create and supply fresh units in our international ETFs as our limits are exhausted in line with the restriction on international funds by Sebi. Given the higher investor demand, where new supply is unavailable, units are trading at a premium,” says Siddharth Srivastava, head – ETF Products, Mirae asset mutual fund.
The RBI regulates the fund inflows and outflows and currently there is an overall industry level limit of $7 billion for mutual funds to invest overseas with an additional $1 billion for ETFs.
A correction and redemption in few schemes, led to cumulative investments made by international MF schemes coming down and based on this, the regulator again allowed inflows, making few fund houses accept investments.
Nippon India ETF Hang Seng Bees and Mirae Asset Hang Seng Tech ETF trade at a premium to their NAV. While NAV of Nippon Hang Seng ETF is ₹324 per unit, it traded on the NSE at Rs 369 on November 5 coming down to ₹350 on November 6, an 8-13% premium to NAV. The Mirae Asset Tech ETF traded at ₹19.64 compared to its NAV of ₹16.95, a premium of 16%.Actively managed open-end equity MF schemes Axis Greater China Equity FoF and Edelweiss Greater China Offshore Equity FOF that focus on China, are available at their daily NAV.ETFs are bought and sold by investors on the exchange and are passively managed with a low expense ratio. Fund houses often appoint market makers who provide two way liquidity to investors. In addition to this, large investors often approach the fund house separately for unit creation.
There is a recent interest in Chinese equities as investors eye diversification of equity portfolios. Many investors find Chinese equity cheap in terms of valuations and they believe there is margin of safety when compared to other emerging markets. The Shanghai Stock Exchange’s (SSE) PE ratio is 14.36 compared to India’s Nifty 50 that trades at a PE of 21.8.
“China’s valuations are at multi-decade lows, contrasting with relatively higher valuations in other emerging markets. China offers unique strengths in industrials, materials, consumer discretionary and tech hardware, making it a compelling diversification choice,” says Niranjan Avasthi, senior V-P, Edelweiss MF. He believes with recent government initiatives and attractive entry points, China’s market offers long term investors a promising alternative to higher-valued global markets.