ETF Premium/Discount
The gap between an ETF's market price and the value of its underlying holdings.
Formula
Premium or Discount % = (Market Price - iNAV) / iNAV x 100
Unit
%
In depth
In a well-functioning ETF the gap stays within a few basis points, kept there by authorised participants arbitraging it away. Persistent premiums appear when creation is constrained — Indian international ETFs have traded at large premiums during periods when overseas investment limits were exhausted, and buyers at those prices lost the premium when it normalised. Discounts appear when the underlying is hard to sell, typically in stressed debt markets. Buying an ETF without checking the premium is the most common and most avoidable ETF mistake.
Worked example
An international ETF trades at a 12% premium because creation is suspended. When creation resumes and the premium closes, the holder loses 12% even if the underlying index has not moved at all.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “ETF Premium/Discount” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.