Article
Jan 24, 2026
ETF Premium to NAV: Why Silver ETFs and Overseas Funds Crashed (And What Investors Missed - 2026)
What Is Premium to NAV (In Simple Terms)?
Every ETF or mutual fund has a Net Asset Value (NAV) — the true value of the assets it holds.
But ETFs trade on the stock exchange.
So you have two prices:
NAV → What the assets are actually worth
Market Price → What investors are paying on the exchange
When:
Market Price > NAV → ETF is trading at a premium
Market Price < NAV → ETF is trading at a discount
In liquid, well-functioning ETFs, this gap is usually tiny.
In stressed or constrained markets, it can become dangerously large.
What Happened with Silver ETFs and Overseas Funds in India?
Over the last few years, three structural forces came together:
1. Explosive Demand for Global & Commodity Exposure
Indian investors wanted:
Silver
US stocks
Global tech
International diversification
Flows surged into:
Silver ETFs
International ETFs
Overseas feeder mutual funds
Demand went up fast.
2. Supply Was Artificially Restricted
At the same time:
SEBI imposed limits on overseas investments
Fund houses hit regulatory caps on foreign exposure
Creation of new ETF units was constrained
So you had:
High demand
Limited new supply
That’s a textbook setup for premiums to NAV.
3. Premiums Quietly Built Up
In many cases:
Silver ETFs traded at 5–15%+ premium to NAV
Some overseas funds traded at 10–20%+ premium
Investors unknowingly paid far more than asset value
They weren’t buying silver.
They were buying scarcity.
Why the Crash Happened (Even Without a Crash in Assets)
When constraints eased or sentiment shifted:
New units got created
Regulatory headroom improved
Liquidity normalized
Suddenly:
The scarcity disappeared
Premiums collapsed
ETF prices fell — even if silver or global markets didn’t
To investors, it felt like:
“My silver ETF crashed.”
In reality:
The premium collapsed, not necessarily the asset.
That’s a very different risk.
The Hidden Risk Most Investors Don’t See
Most investors look at:
Past returns
Asset theme (silver, US tech, global funds)
Chart patterns
Very few look at:
👉 Premium or discount to NAV
That’s dangerous.
Because you can:
Be right on silver
Be right on US markets
Be right on diversification
And still lose money because:
You overpaid for the wrapper.
Why This Risk Is Higher in Indian Markets
This problem is structurally worse in India because:
Many ETFs are thinly traded
Market makers are less active
Regulatory caps distort supply
Retail flows are more momentum-driven
In developed markets, premiums usually get arbitraged away quickly.
In India, they can persist — and then collapse violently.
Real Example: How a Premium Can Destroy Returns
Imagine:
Silver rises 10%
ETF was bought at 12% premium to NAV
If the premium collapses back to zero:
Your ETF price can fall ~2%
Even though silver went up.
That’s how investors lose money despite being right on the asset.
How to Protect Yourself from Premium-to-NAV Traps
This is the checklist sophisticated investors use:
1. Always Check NAV vs Market Price
If premium > 2–3%, be cautious.
If premium > 5%, you’re taking real structural risk.
2. Avoid Chasing “Hot” ETF Themes
Hot themes + low liquidity = premium risk.
3. Be Extra Careful with Overseas & Commodity ETFs
These are the most likely to face:
Regulatory constraints
Unit creation limits
Artificial scarcity
4. Use Direct Market Access Where Possible
If you want global exposure:
Direct international investing
Broader, more liquid structures
often reduce wrapper risk.
Conclusion
Many investors thought they were betting on:
Silver
Global markets
International diversification
In reality, they were betting on:
👉 Premiums staying inflated.
That’s not investing. That’s speculating on market plumbing.
The lesson is simple but powerful:
Always separate the asset from the wrapper. The asset may be solid. The wrapper can still hurt you.
Understanding premium to NAV isn’t advanced finance.
It’s basic risk management, and it can save you from painful, unnecessary losses.