India Fund Roundup (IFN, IIF, PRASX, ETGIX)

Includes: HDB, IFN, IIF, INFY

Over past three years, Asia, not including Japan, has delivered annualized gains of more than 21%. Heavy weightings of China and India stocks have helped drive those stellar returns. Going forward, however, many experts don't think it will be so easy to make money on Asia shares. China's red-hot economy is losing a little steam -- and in India, it's getting harder to find good stocks at reasonable prices. That's why investors who want to put money to work in these two countries over the long haul (read: at least five years) should stick with a professional money manager who knows the ins and outs of the Asian markets and can ride the volatility endemic to the region, write Lauren Young and Assif Shameen of BusinessWeek.

"There was a time when you could buy stocks fairly cheaply, especially in India, but also in China," says J. Mark Mobius, emerging markets guru at the Franklin Templeton fund group. "Not any more."

Of the diversified funds in the Asia-Pacific group, the real standout is T. Rowe Price New Asia (MUTF:PRASX). Aside from steady performance, the fund, with a $1.3 billion portfolio of pan-Asian stocks, is a bargain, with an expense ratio of 1.09%, one of the lowest in the category. What also makes this fund especially enticing is the fact that the management team has run the fund for almost a decade. Co-manager Frances Dydasco is based in Singapore and focuses on South Asia and Southeast Asia, while Mark Edwards, based in Hong Kong, covers North Asian markets, including South Korea.

Heavily Invested in India, Underweight China

The fund is heavily invested in India, though Dydasco recently cashed in some of the fund's most profitable India equities, taking the weighting in that country from 20% to 14%. But for investors who want a diversified fund with some India exposure, this is by far the best option. She has been drawn to industries where there's a large engineering component, including aerospace, automotive, and, to some extent, electronics manufacturing.

"The outlook for manufacturing in India is an untold story," Dydasco says. "India is as competitive on China on cost," Dydasco says. Its companies "are better managed, and they are seeking to add value through research and development and engineering." T. Rowe Price New Asia is currently underweight China. "We believe the economy is going to slow," Dydasco says. "It remains difficult to find good companies in China."

Notwithstanding Dydasco's bullish view, it remains difficult to find mutual funds that concentrate on India. Just one fund -- Eaton Vance Greater India -- focuses on the country, although several others say they are looking at launching India funds. Investors can choose from at least five closed-end funds, including Morgan Stanley Dean Witter's India Investment Fund (IIF) and India Fund Inc. (IFN)

ETGIX likes ONGC & GlaxoSmithKline India

Eaton Vance Greater India (MUTF:ETGIX), managed by Samir Mehta, covers the spectrum in terms of market capitalization, investing in small, midsize, and large-cap companies, including software giant Infosys Technologies (INFY) and HDFC Bank (HDB).

In the health-care sector, Mehta likes the India subsidiary of British healthcare giant GlaxoSmithKline (NYSE:GSK) Pharmaceuticals. "GlaxoSmithKline has restructured its business, improved margins, sold noncore assets, and now is completely focused on long-term growth in India," Mehta says. Even better, the company has manufacturing and product-related patent protection.

Mehta's favorite stock is Oil & Natural Gas Corp. (ONGC), a state-controlled energy company, which plans to build more than 1,000 gas stations in coming years. "We think it is a long-term growth story because of the growing Indian appetite for oil and gas," he says. The fund continues to own Reliance Industries, India's largest company, with big holdings in petroleum and chemicals. "The underlying value of its assets and cash-generation ability were overshadowed by a family dispute, which has now been resolved," Mehta says.

India's Frothy. Wait for the Dips!

Considering that funds focused on India and China have posted spectacular returns as of late, Donald Cassidy, senior research analyst at fundtracker Lipper Analytical Services, advises investors to wait until the next bout of market turmoil to get into some of these portfolios. "The next time something bad happens and the emerging markets have a scare is when I'll go in," Cassidy says.

That's a discipline most investors don't have the stomach to follow. But buying on the dips -- and there are bound to be some in new markets like China and India -- is a strategy likely to pay off for years to come.