More Ways to Invest in India

The iPath MSCI India ETN ( INP), tracks a group of 62 Indian stocks. But because of a decision by Indian securities regulators, this ETN's sponsor, Barclays Bank, cannot issue more shares. As a result, the ETN now trades like a closed-end fund (see more on closed-ends below).

The ETN had a great run in 2007, but '08 has been a stinker. The stock, which closed at $76.38 on Feburary 21, is 35% off the $118 intra-day high it hit on January 14.

For investors who want a traditional open-end fund, all but one of the five choices are unattractive because they levy sales charges. The exception is the no-load Matthews India fund ( MINDX). In 2006, its first full year, the fund returned 36%, compared with a 51% gain for the SENSEX (in dollar terms). In 2007, Matthews India soared 64%, trailing the index by three percentage points.

So far, 2008 has been difficult. The fund has lost 17% year-to-date through February 21. Co-manager Sharat Shroff attributes the drop to the fund's heavy weighting in consumer stocks, which have performed poorly recently. "People in India are buying cars and cell phones and taking out mortgages for the first time and we are focused on that domestic consumption," says Shroff.

Key holdings include Infosys Technologies ( INFY), a technology outsourcing company; Dabur India, a healthcare company; and wireless-phone service provider. Matthews India requires $2,500 to start. It carries a reasonable annual expense ratio of 1.41%, and charges a 2% redemption fee on shares sold within 90 days of purchase.

The only other open-end fund with a track record of at least a year is Eaton Vance Greater India. Its class A shares ( ETGIX), which levy a front-end sales charge of 5.75%, have returned an annualized 45% over the past five years through February 20. Top holdings include industrial materials giant Reliance Industries and HDFC Bank.

Investors can also buy into India through two closed-end funds. Closed-ends issue a set number of shares and then trade just like stocks. Supply and demand determine the price of closed-end shares, which typically trade above or below the underlying value of the funds' assets.

Both India closed-ends earned astronomical returns in 2007. On the basis of its net asset value (NAV) per share, Morgan Stanley India Investment fund ( IIF) soared 70% in 2007, while its share price jumped 50%. Over the past five years through February 15, the fund gained 48% annualized on assets and 51% annualized on the basis of its share price.

But the fund's NAV has dropped 16% so far this year, and its share price has fallen 20%. As of February 20, the fund, which closed that day at $43.40, sold at a 5.9% discount to NAV. The fund's annual expense ratio is 1.35%.

The performance of India fund ( IFN) has been similar. Over the past five years through February 15, it returned 44% annualized on assets and 46% annualized on its shares. Year-to-date, the fund has dropped 15% and 16% on NAV and share price, respectively.

The fund, which carries an expense ratio if 1.41%, recently sold for a 5% discount to NAV. The shares closed at $52.47 on February 20.