Investing in India – CEFs and Mutual Funds

This article also appeared at The Motley Fool.

In the first part of this series, I covered investing in India via ETFs. In this section, I will cover CEFs and mutual funds.

There are two CEFs (closed-end funds – essentially, managed funds that trade as stocks) that invest exclusively in India.

Fund Adjusted Expense Ratio Discount to NAV
The India Fund (NYSE: IFN) 1.01% 11%
Morgan Stanley India Investment Fund (NYSE: IIF) 1.38% 12%

Both funds are very comparable. Their holdings are similar, except that The India Fund has a higher concentration of large caps than Morgan Stanley’s fund. Their returns are very similar, with The India Fund having a slight edge in long-term annualized returns.

In the last few years, returns of the Indian market have trailed those of the US market:

 

Whenever this happens, the discount of the Indian CEFs steepens. So the six-month average discount for both funds is a lot higher than the three-year average discount.

Fund 6 Month Average Discount 3 Year Average Discount
IFN -11.63 -8.09
IIF -11.66 -8.42

This discount to NAV makes now a great time to buy into either of the CEFs.

There are three mutual funds that invest in India:

Matthews India Fund – MINDX – This is a very good fund to invest in India with. It has a low expense ratio of 1.18%. It is a no load fund with a minimum investment of $500 for IRAs and $2500 for regular accounts. It is rated 4-star by Morningstar and its performance has been better than both the CEFs.

Eaton Vance Greater India Fund Class A – ETGIX- This on the other hand is pretty poor. It has a front end load of up to 5.75%, expense ratio of nearly 2% and poor past performance compared to MINDX and deserves the 1-star from Morningstar that it gets.

Eaton Vance Greater India Fund Class B – EMGIX – This is closed to new investors, but is similar to ETGIX except that the load is a back end load instead of a front end load.

In conclusion, among the options to invest in India we’ve covered so far, you have good choices in ETFs, CEFs and mutual funds, depending on your preference. But as of now, these closed-end funds present a good opportunity to get in while they’re trading at significant discounts.

Disclosure: Long IFN

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