Is China market too HOT for your portfolio? Do you want to tap into another emerging market than China? There is another developing market that is not extremely hot, but can provide some classic growth to your portfolio for the next few years. And that can be Indian stock market.

Why do you want to invest in India? The GDP of India is growing around 8% each year for the past few years, the government policies have been relaxing for foreign investment, employment rate has been increasing and average salary has grown by approximately 25% annually. This has resulted in the surge of middle class population and also the purchasing power of middle class. Besides, India is a democratic country with liberal economic policies being pursued by governments of all political parties. Currently being the home of largest number of IT professionals, India seems a promising market for high ROI investment for years to come.

Now that you have been contemplating about fitting Indian market into your overall portfolio, you might wonder about the possible options that you have in order to participate in India’s economic growth. The choices are to either invest in the Indian ADRs that are traded in the US markets or to invest in the Mutual funds or ETFs that have exposure to Indian companies.

American depositary receipts (ADR) are available for Indian companies like Infosys, Satyam, Wipro, Cognizant, ICICI bank, etc. Many of these companies are large cap and are capable of getting listed in the US markets due to their size and due to few other advantages they have because of the nature of the business they are in. IT companies have natural advantage to list themselves in the US since much of their revenue is derived from the US companies, hence making process easier to get listed in the US stock markets. However, you would be missing out on many mid and large cap companies with potential for explosive growth if you were to just go with these ADR Indian stocks. Unless you are very certain that Indian ADRs can yield the desired returns for your portfolio, you might be better off choosing Exchange Traded Funds (ETF) or Closed End Mutual funds or Open end mutual funds, with exposure to all growing sectors.

Here are the main options to get into spicy Indian market action.

One popular fund is Morgan Stanley India Investment Fund (IIF) which is rated 5 star by Morningstar ratings. It is a closed end management fund established in 1994 and current expense ratio is at 1.35%. However, the managers for the fund changed in 2001 and 2005. Today, the fund is available at a very good discount of 12% to its NAV. Good discount to move in if you find a good dip. Its three year and five year performances are 35% and 37% respectively.

Equally old is a four star rated closed end fund, Blackstone group’s India Fund (IFN). This fund started in 1994 and the current manager has been with the fund since 1997. With a distribution rate of 8% and a discount of 12% to its NAV, this fund is attractively priced at present. Like IIF, IFN’s three year and five year performances are 35% and 37% respectively. Exp. Ratio=1.41%

One of the highest returns among Indian funds for this year (so far) is by Matthews India fund (MINDX) with 17% return for the first five months of 2007 alone. Though the fund is just 2 years old, it has performed very well so far. This is a regular mutual fund, which benchmarks the BSE 100 index. Exp. Ratio = 1.41%

With a very good 3 year and 5 year track performance is the fund Eaton Vance greater India A fund, ETGIX. Though this fund had superior returns, it has few items that need to be carefully watched and they are: high expense ratio at 2.14%, front load of 5.75%, and a new manager starting March of 2007. I personally don’t like to pay extra to the operation of the fund unless the fund manager really justifies the high expense ratios and the load that they are demanding.

Recent addition to the family is a special fund, an Exchange Traded Note, iPath MSCI India Index ETN (INP). This fund is linked to the MSCI India Total Return Index with YTD (as of May end 2007) return of 15%. However, unlike ETFs this is an unsecured debt instrument that carries the credit risk of the issuer, Barclays Bank.

The First Trust Family of ETFs has rolled out a new ETF, FNI, for investing in China and India together. The fund seeks investment results that correspond to the price and yield of equity index called Chindia index. This fund started this May 11^th and the weightings of the companies in this fund is done very creatively. The Index consists of a portfolio of American depository receipts (ADRs) selected from a universe of all listed depositary receipts of companies from China and India trading on the United States exchanges.

Whether you want a piece of the action from Indian market or China market or Chindia market, try to buy the securities on a dip and ride the wave for a while.

-Nidhi