How to Invest in India : Indian Stock Market Mutual Funds

How to Invest in India : Indian Stock Market Mutual Funds
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Investing in India

The latest economic reforms put forth by Indian Government have made India one of the potential markets which fetch terrific return on investments through a common route. However, there are different provisions made by the Indian government for foreign investors and NRI investors. In “How to Invest in India - For NRI Investors” you found about investing options for Non- Resident Indians (NRIs). Now let’s get acquainted with the investing options, schemes and legalities an American would like to know while investing in India. Learn how to invest in India the right way and see considerable short term gains.

The perception of U.S. investors about India, one of the world’s largest and most rapidly growing economies, is changing. India’s financial sector is indeed doing well. The stock markets are in a continued bullish state despite global recession. There are well-conceived and effective regulatory mechanisms in place. The government is according priority to infrastructural development. All these factors and more make India an ideal destination for foreign investors.

India’s newly elected government is expected to further speed up economic and India is well-set to open up its markets to more foreign investment. Foreign investors should seriously consider allotting a part of their investment portfolio into India as attractive gains are possible over the next few years

Mutual Funds Investing in India

Mutual funds are a safe bet for foreign investors - particularly for those who have no meaningful knowledge of the Indian markets. Mutual funds in India are managed by professionals who have expert knowledge of the stock markets. There are two types of mutual funds in India.

Open-end mutual funds, that carry no maturity date, can be bought and sold at prices linked to the unit’s net asset value. Closed-ended mutual funds carry fixed maturity dates, ranging from two to 15 years. Even if one fails to buy these units at initial offering, they can be subsequently bought from secondary markets. Recognize that interval options combine features of open and closed-end funds. Units of both types of mutual funds provide liquidity as they can be traded in the stock market.

Exchange Traded Fund (ETF)

The Exchange Traded Fund (ETF) is very well traded in the U.S. and has an array of some blue chip Indian stocks. Recently there was a tremendous short-term gain as the Indian ETF, within a space of a month, rose beyond 23%. Such types of incredible gains seldom occur but people who opted for this investment have become big beneficiaries.

Indian Stock Market

Investors belonging to foreign countries other than few neighboring countries are barred from investing through Indian Stock Exchanges in India. However some different routes are available to US nationals to invest in India. Two common ways are:

  • ADRs (American Depository Receipts) issued in foreign markets by companies operating in India
  • Mutual funds soared by institutional investors, domestic or foreign.

However, Foreign Institutions Investors (FII) can trade in Indian stock markets and invest almost in any Indian securities, subject to certain rules by Indian banks and other regulatory bodies. Many frontline Indian companies have issued ADR and GDR (Global Depository Receipts) in foreign stock markets and they are well traded in the US and European stock exchanges.

Tips for Foreign Investors:

The most recommended and legal way of investing in India is through FII mutual funds. The best part of this mechanism is it is listed and registered in USA and handles investment by actually investing. Today Indian markets have, in a way, gone beyond their level of saturation and are expanding rapidly. This expansion has led to the foundation of Indian Specific funds in a number of countries across the globe, especially the ones with strong hold on markets like USA, Japan or UK. Indian equities have become the main target of these strong market economies and every Indian equity is associated with or incorporated with a section called Indian specific funds. This is one of the safest ways.

Some tips for American Investors investing in India:

  • Know what are the best places to invest in India
  • Try to know all the legalities associated with investments in Indian markets. An American cannot opt for investing directly in Indian stocks. There are various resources like NASSCOM providing information on investing in Indian markets.
  • Invest in American companies operating business in India. This is one of the best indirect investments made.
  • Read Indian magazines and journals through a number of resources available. For example – IndUS Journal of Business
  • If you need more accurate information then try to get in touch with Indian Law firms. Try to avoid any sort of legal risks involved.

Final Words

While most economies throughout the world are seriously affected due to global recession, the Indian economy is faring well. India has a population exceeding 1.2 billion and still growing. India is predominantly an agricultural country. Due to the rapidly advancing economy, the automobile sector in India is also thriving. It is also well known that Indians are fond of gold jewelry. As such, Indian markets continue to be enthusiastic for oil, gold and commodities. This is the right time for foreign investors to turn their attention to India.

Image Reference

Wikimedia Commons / How to Invest in India - structure

This post is part of the series: How to Invest in India

Investment strategies for the booming Indian economy.

  1. How to Invest in India - Tips for NRI Investors
  2. How to Invest in India: Vibrant Indian Economy Beckons Foreign Investors