What's the Best Way to Invest in India?

Before Barclays India Exchange Traded Note (INP) showed up, the only options other than regular mutual funds were the CEF’s - The India Fund Inc. (IFN) and Morgan Stanley's India Investment Fund (IIF). Both IIF and IFN were easily beating the Indian Market (BSE and NSE). Then came INP - an exchange traded note. I won’t go into details, but INP tracks the top 68 stocks in the NSE including dividends. No dividends are actually paid to the stockholders; they are just automatically reinvested into the share price of INP.

Both the India funds, IIF and IFN, used to trade at significant premiums and both now trade at discounts of about 13%! (as of Friday). Over the last year, while the Indian Stock Market has reached and stayed around all time highs (albeit with some volatility), IIF and IFN have not moved significantly with their discount steepening.

So what should one do to invest in India? For now, I would recommend INP but there are some golden opportunities with IFN too. Over the last few years, when IFN was trading at a premium, I used to buy some more using their annual rights offer at 5% discount to NAV (which normally was a 20% discount to the trading price). Now that IFN is trading at a discount, and it might continue to do so, one can make use of their semi-annual repurchase offer to make some money. Buy at 13% discount, sell at 2% discount. This scheme, however, may not work as well as you would hope because the discount is likely to narrow before the offer.

That said, over the long term you probably won’t go wrong with any of the India investments. But hey, as usual don’t just take my word for it, do your own research before investing.

Disclosure: Author holds positions in the above mentioned funds.

Comments

[Nidhi]

creating-wealth.blogsp...

[s_carnahan]

It seems to me you might consider Mathews India Fund (MINDX). It is no-load and does not sell at a premium over NAV.

[SiddharthDalal]

I have considered MINDX but with INP being easier to trade and having no minimums etc. and the close performance of MINDX and INP, I see no reason to buy MINDX. Before INP, IFN and IIF were both outperforming MINDX AFAIR.