India Investment Options in US (Part1)

I have been asked this question few times now by colleagues and friends, and rather than answering each one individually, I decided to make it a blog post. For those who want to take advantage of the booming Indian markets without having to do the initial research, read on. I would still encourage each of you to thoroughly investigate any particular investment option that interests you. I will present this article in parts, and this is the first part.

Background:
India is and has been an attractive investment option for foreign money for some time now. The average GDP growth in India has been 8% for the last 3 years, and the average salary increase abt 30%. This has brought about a tremendous increase in people's disposable income, and hence the purchasing power. No wonder, all kinds of international companies are clamoring to have an Indian presence. Some of these companies include well known names like Walmart and Starbucks.

Funds:
This is probably the easiest way to invest in India and to take advantage of the booming Indian markets. But you still have to have some appetite for volatility - Indian markets are quite volatile and it wouldnt surprise me if these funds took a hit of more than 5% within a span of few days. The two popular closed end funds include Blackstone group's India Fund (IFN ) and Morgan Stanley's India Investment Fund (IIF), both established in 1993. For those new to closed end funds, a closed end fund is practically similar to a mutual fund, except that it trades on the stock market. A closed end fund may trade at a discount or premium to its Net Asset Value (NAV), whereas you always end up buying or selling a mutual fund at its NAV. For a more detailed discussion on closed end funds, click here. The graphs of both these funds have pretty much mimicked each other since inception. India Fund's annualized returns for the last 3 and 5 years have been 33.20% and 36.66% respectively according to Blackstone Group's website. India Investment Fund's annualized returns have been 34% and 35.99% over the same time. As I write this, both these funds are trading at a slight discount to their NAV, which makes them worth a look. Another fund that deserves a mention here is the Matthews' India Fund (MINDX). This is a regular mutual fund, which benchmarks the BSE 100 index. This fund has been around since 10/31/05 and boasts of a 1-year average annualized returns of 36.48%. Matthews Asian Funds have boasted of a strong performance in various Asian countries and Matthews in general holds a good reputation. Matthews India Fund has also outperformed its counterparts IIF and IFN over the past 6 months. Then theres also the EATON Vance Greater India Fund (ETGIX) established in 1994. This fund invests in India as well as other countries in the Indian sub-continent like Pakistan and Sri-Lanka. This fund has returned 29.92 and 33.43% annualized returns over the past 3 and 5 years respectively. Since we are talking about funds here, one more investment vehicle that deserves mention here is the Barclay's iPath India MSCI Exchange Traded Note (INP). For those unfamiliar with ETNs, heres a quick refresher. In simple terms, an exchange traded note is like a hybrid between bonds and ETFs. This exchange traded was recently started by Barclays in December 2006. Another thing to keep in mind while investing in any of these funds is the expense ratio and other fees associated with it.

Heres a quick summary of the funds and ETN I mentioned above:

India Fund from Blackstone group (IFN): Expense ratio of 1.41% Annual Report
India Investment Fund from Morgan Stanley (IIF): Expense ratio of 1.35% Prospectus
Matthews India Fund (MINDX): Annual operating fee of 1.34% Prospectus
EATON Vance Greater India Fund (ETGIX): Expense ratio of 2.14% Prospectus
Barclay's iPath India MSCI Exchange Traded Note (INP): Yearly fee of 0.89% Prospectus

(to be continued)