Comparing India Funds: INP is Clearly the Best Option

The fact that The India Fund (IFN) and Morgan Stanley's India Investment Fund (IIF), two closed-end funds focused on India, stopped following the broad Indian market as measured by the India BSE 30 Sensitive Index was painfully clear late last year.

In December 2006, Barclays announced the availability of the iPath MSCI India ETN (INP). INP is not an ETF but an ETN (Exchange Traded Note). ETNs are unsecured debt instruments and carry the credit risk of the issuer, Barclays Bank PLC in this case.

What I was curious to know was if, during the most recent market correction, IFN and IIF had held up any better than the BSE 30 index and, also, if INP had continued to track the index. While three months of history is not much to go by, it is nevertheless a good early indicator that INP continues to track the index well and that IFN and IIF continue to underperform.

For anyone intent on participating in the Indian market, INP seems to be a lower risk alternative to the badly lagging IFN and IIF closed-end funds.

Full disclosure: the author does not hold a position in any of the securities discussed above.

Comments

[gerald.rothstein]

This is nonsense. The closed end funds have lagged because their premiums dramatically diminished as enthusiasm for emerging markets declined. If that enthusiasm reverses, the premiums will probably expand. It would be more useful to say that the closed end funds have an additional risk factor in that the may sell at a premium or discount to their net asset value. In terms of investment performance, IFN, which I have long followed but not owned, as substanially outperformed the indexes over a lengthy period of time.

[RajDhamodharan]

I agree with the comment from Gerald. I did some more detailed analysis taking the dividend distributions into account and posted a complete comment here. Comment page is not flexible enough to post additional charts.

randv.blogspot.com/200...

[DavidHepworth]

We have done a very comprehensive comparison of the two funds on our site www.indiafund.net I think that the main issues are the premium/discount to NAV as well.