The stock market in emerging economies such as India and China has been having a terrific run the last few years. The markets in India especially have risen rapidly in the last few years, and many mutual funds that invest there have shown dizzying returns, reminiscent of the dot.com bubble in the late 90s in the US. The rise has been supported by terrific economic growth of 8-9% annum that has brought prosperity to large sections of the educated middle-class.

Even though the stock market, BSE (Bombay Stock Exchange), has been in operation for than a century, the markets are not yet as efficient, liquid and transparent as those in the western world. Many rules are being tightened, and more information being provided to shareholders, but playing the market individually continues to be tough game. Institutional investors rule the roost, and are the safest means to take advantage of the stock market boom in India.

There are two main choices to be made regarding purchasing an India mutual fund - do you pick a fund operated in India, or a fund that runs in the US (or in the developed part of the world) that invests in India. There are many good choices in either situation. For the moment, focusing on mutual funds that operate from the US, we could recommend either the closed end fund The India Fund (IFN), Morgan Stanley India Investment Fund (IIF) or perhaps the MSCI India ETF that trades on Singapore exchange. For a more diversified emerging markets exposure, T Rowe Price Emerging Markets fund has shown the maturity to deal with vagaries of the markets in India, China and other developing countries.

Alternatively, you could build your own India portfolio that acts as a mutual fund by buying stocks of a diversified group of companies that trade on the US stock exchange. A good set of companies to watch for are VSNL (Videsh Sanchar Nigam Limited) which provides internet services; MTNL (Mahanagar Telephone Nigam Limited), which provides phone connections, including wireless; Infosys, which is a software services and solutions provider; Wipro, another software services providers; Reliance Petrochemicals - for a play in the growing energy sector; ICICI - which is a bank that is expanding profitably into rural India (where the majority of the population lives and is underserved). Adding a few more large-cap stocks to complete your diversification mix, you will have your own India mutual fund for your portfolio.

There is a definite pattern in emerging economy stock markets as they mature. At first, once a stable government and reasonable economy is in place for a country, the government bonds of that country are the place to invest. These bonds, which are backed by government guarantee, generally provide higher rates than those found in the developed parts of the world. But the very act of investors buying these bonds shows a trust in the government and the system in place. Soon, as corporations are allowed to grow and prosper, corporate bonds are the best place to invest your money. As confidence in the companies and the economy grows, these corporate bonds become the darlings of investors with their higher rate of return and other qualities such as having a no-call clause etc. The next phase of growth and increasing confidence sees money flowing into large-cap stocks. India is in this phase of market and economic maturity. Large-cap stocks are seen as a safe haven that will however grow more like small-cap companies in the developed world. As things continue to mature, watch for the growth pattern to spread to mid-cap stocks - but that is still at least a decade away, assuming the path to growth is maintained.

If you have a 10-year investment window available for your money, definitely expose yourself to the Indian stock market, there is a large opportunity still awaiting the prudent investor.