Risk-takers who invested in India last year enjoyed outstanding returns from unit and investment trusts that specialise in the region.
Worth celebrating: India enjoyed great returns last year
JP Morgan Indian Investment Trust and Fidelity India Focus unit trust both delivered about 60 per cent growth to investors. But where do we go from here?
India still has masses of potential, according to the experts. With a population of one billion, India is home to a quarter of the world's population of under-25s. It also has the largest middle class in the world -250 million.
If you can afford to risk some capital in a highly volatile market, it may be worth considering dipping a toe in the water. While India is no longer cheap, there are still profits to be made, according to investment advisers. But which fund to choose?
Other popular India funds, such as those run by HSBC and Aberdeen, also returned more than 50 per cent to investors last year. These two have good track records over five years as well, with each trebling investors' money over three years.
Although Fidelity India Focus endured a small downturn late last year, coinciding with a change in its manager, investment advisers are still backing it for the future. The fund's stock-picking success had been largely overseen by Michael Gordon, who stepped down as manager in September following his promotion to chief investment officer at Fidelity.
The fund, which invests primarily in small to medium-sized companies with the potential for growth, is now managed by Sandeep Kothari. He has been with Fidelity for three years, and has worked as an analyst since 1993.
Advisers say the recent downturn was due to a dip in the Asian markets - the MSCI India Index, which the fund is benchmarked against, dropped 10 per cent in October. If any illustrations of the risks that prices might fall without warning were needed, such setbacks provide them. Even so, independent financial advisers are not worried by the change in fund manager, however, as Arun Mehra, Mr Kothari's number two, has been involved with the fund since its launch.
Darius McDermott, managing director of the advisory discount broker Chelsea Financial Services, said: "That is the Fidelity way. They are very analyst-driven, and always promote from within, very rarely bringing in an outside fund manager. They have a massive pool of analysts and a good record in Asia."
Mr McDermott will keep an eye on the fund to see how it fares in the next few months. For the time being, he believes investors should stay put.
Philippa Gee, of independent financial adviser Torquil Clark, said: "Fidelity has the global research capabilities to pull this off and has done so successfully with good perforrnance to date. It could not avoid the problems that plagued the entire sector in the final three months of last year." Miss Gee is continuing to recommend Fidelity's fund over others in the sector.
Meera Patel, senior analyst with Hargreaves Lansclown, an independent financial adviser, said: "There is no question that Fidelity has the resources and is dedicated to run Indian equities. The fund has grown very large in a short space of time and Fidelity has delivered some strong performance."
This fund is not for the faint of heart. It is based offshore, as are all the unit trusts that focus on India. Fidelity says this is primarily so it can be marketed in other European countries. It is possible to invest in euros, dollars or sterling.
Overall, advisers are still keen on India. Miss Patel said: "Since deregulation in 1991 the Indian economy has opened up and there is a better infrastructure in place. Foreign investors have brought in $23billion over the last three years."
Always a good indicator, mobile phone sales are growing by two million per month with 54 million subscribers now, compared with 10 million in 2002. There are expected to be 250 million by 2007.
Advisers are also keen on the Indian stock market's relative maturity compared with China.
Miss Gee said: "India has benefited from foreign investment and has provided particular outsourcing services, such as call centres. My concern, particularly over the short term, is how strong this will continue to be.
"However, for those who are nervous following the recent downturn, consider reducing your exposure to such a high-risk area. The most sensible course of action would be to reduce your holding by 50 per cent."
Making monthly savings also reduces the risk of being hit by fluctuations in the market. Alternatively, it is possible to choose a broader fund that holds some Indian stocks. For investors who prefer this approach, Miss Gee recommended Aberdeen Emerging Markets, which holds around 14 per cent in India.