Mirae Asset Mutual Fund (Mirae Asset MF) has cautioned investors that its overseas exchange-traded funds (ETFs) are currently trading at a premium due to restrictions on market makers. This means that these ETFs are being bought and sold at prices higher than their underlying net asset values (NAVs).
The restrictions on market makers prevent them from buying fresh ETF units from the fund house and selling them on the exchanges. This has led to a shortage of liquidity in the market for these ETFs, which has driven up their prices.
Mirae Asset MF had previously suspended subscriptions from large investors in its overseas ETFs in January 2023. The fund house has now issued a fresh advisory, warning investors about the premiums on these ETFs compared to their i-NAVs.
The restrictions on market-making will primarily affect new investors who are looking to purchase ETF units. Existing investors can still redeem their ETF units at values close to the i-NAVs. This is because the current restrictions do not prevent market makers from buying units from investors on the exchanges and selling them to the fund house.
The international investment limits were hit on 1 February 2022, and Sebi later 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.
