U.S. investors have several options when it comes to investing in India: mutual funds, ETFs and closed end funds.
India focused funds were hit hard by the global slowdown in 2008, but they have bounced back significantly in 2009--nearly fully recovering from a 53% loss.The Indian stock market has rebounded more than most emerging and developed markets in 2009, and investors both in the country and abroad have been funneling funds into this emerging market.
The Matthews India Fund
Eaton Vance Greater India Fund A
Eaton Vance Greater India Fund B
offer investors specific exposure to India's economy.
Matthew's MINDX is managed by Sharat Shroff, who favors stocks with growth prospects that are tied to the rising tide of Indian income. Historically, the companies in the fund have generally been small-cap and mid-cap firms that are undervalued in the current marketplace. As of March 31, the top holding in MINDX' portfolio was Bharti Airtel Ltd. Year to date, MINDX is up 40.14%. MINDX has a 1.29% expense ratio.
ETGIX and EMGIX have been focusing on Indian stocks with good earnings visibility and strong corporate governance. As of March 31, financials and industrials were the two largest sectors in the fund, with 23.01% and 19.08% allocations, respectively. Reliance Industries currently tops the list of the Greater India Fund's holdings. Year to date, EMGIX is up 44.87 and ETGIX is up 45.31%.
ETGIX has a front load fee of 5.75% and an expense ratio of 2.12%. EMGIX has a 5.00% deferred load fee and a 2.62% expense ratio.
Investors have a number of choices when it comes to investing in India through ETFs.
Powershares India Portfolio
Wisdom Tree Earnings Fund
offer investors exposure to India's markets through equity portfolios, while
iPath MSCI India Index ETN
offers investors exposure through debt notes.
Year to date, INP has risen 46.55% while PIN and EPI have risen 38.73% and 44.43%, respectively. Equity holding ETFs are preferable to debt holding ETNs for the average investor, so EPI and PIN may be the more user-friendly funds for first-time India ETF buyers. While EPI has a slightly higher fee than PIN, the Wisdom Tree offering has a more diverse capitalization mix in its underlying portfolio. The larger number of holdings in EPI also help to diversify investment risk.
Infosys Technologies was the top component in PIN as of July 14, while EPI's top spot went to Reliance Industries. Reliance Industries was the top holding in INP as of March 31.
INP has an expense ratio of 0.89% while PIN and EPI have expense ratios of 0.78% and 0.88%, respectively.
, I discussed India ETFs in more detail.
Closed End Funds
Blackstone's India Fund
and Morgan Stanley's
India Investments Fund
offer investors exposure to India through closed end funds. Year to date, the closed end funds have beaten their mutual fund and ETF peers. IFN is up 54.43% while IIF has risen 51.92%.
IFN uses an "on-the-ground" research team in India to seek out attractive investment opportunities using fundamental and quantitative analysis. Fund managers speak to managers in the U.S., travel abroad, and use asset allocation models that help them select stocks using a bottom-up screening model.
IIF seeks to invest in sectors that have an "attractive" combination of dynamics, valuation and sentiment. Fund managers select holdings based on analysis of factors like fiscal policy and mathematical investment valuations.
As of March 31, the top holding in IIF's portfolio was HDFC Bank. The top holding in IFN was Reliance Industries on the same date. IFN has a 1.28% expense ratio while IIF has a 1.46% expense ratio.
Which is right for you? ETFs, mutual funds and closed end funds have different types of risk, fees and valuations. I work with each of my clients individually to discuss which mix of funds are the most suitable for their life-long financial goals, and I recommend that investors always understand the methodology of any fund they are choose. Investing in a single country fund is a more focused, volatile strategy, so any India investment should only make up a small part of a well diversified portfolio.
At the time of publication, Dion does not own any of the funds mentioned.
Don Dion is the publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.
Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.