Investors who see opportunity in Asia's growth typically think of China first. That's one reason why there's no shortage of options for U.S. investors looking to buy a stock mutual fund that focuses on China.

But venture southward to another Asian giant, India, and there are just 10 specialized funds to choose from _ less than one-third of the number focusing on China.

That's despite the fact that India is projected to overtake China as the world's most populous nation around 2030. India also has an economy that's growing nearly as fast as China's.

The modest number of India funds is a result of the relatively small value of India's stocks in the global markets. Mutual funds tracking a broad index of foreign markets typically devote just 1.5 percent of their portfolios to stocks from India. Narrow the focus to funds investing in fast-growing emerging markets, and the weighting in India is 6 percent _ that's one-third as much as they typically hold in Chinese stocks.

Yet India's profile is rising. Half of the India stock funds have launched within the past year and a half. And there are 10 exchange-traded funds focusing on India, most less than two years old. All focus on a mature stock market with more than 5,000 listed companies, including such names as Infosys Technologies, outsourcing company Wipro, automaker Tata Motors and drug maker Dr. Reddy's Laboratories.

The growth in options for investing in India led Morningstar this month to create a new fund category for the group. Previously, they were part of a broader category that invested across much of Asia and the Pacific.

But anyone considering a fund focusing on a single foreign market should know the risks can be much higher than investing in a diversified U.S. stock fund.

For starters, there will be sharp ups and downs. Consider that India funds have posted an average annualized return of 8.7 percent over the past 3 years. Yet in the past 30 days, these funds have lost nearly 12 percent as worries mounted about a host of economic challenges in India, from inflation risks to slowing industrial production.

Also consider whether you already have enough money invested in emerging markets across your portfolio.

"If you've already built a balanced international portfolio, investing in a single-country emerging markets fund is like making an extra bet on top of that," says Bill Rocco, a Morningstar fund analyst. "Think of it like owning a single company's stock, in terms of the risks and rewards."

And investors who prefer funds with established records have little to choose from. Just three of the 10 India funds have 5-year records.

Costs are also an issue. The majority charge expense ratios of 1.90 percent or higher. That's about double the expenses that a typical investor pays on average at international funds of all types

Matthews India (MINDX) is the largest India fund in terms of assets, $673 million, with the category's top 5-year record and lowest expense ratio. Sharat Shroff manages the 4 star-rated fund with Sunil Asnani. Shroff, who earned a bachelor's degree and MBA attending schools in India, discussed his outlook in an interview this week. Here are excerpts:

Q: What's the chief obstacle for India's economy?

A: The lack of clear and forceful leadership within the ranks of the central government is choking the flow of investments. It's a significant deterrent for businesses to invest in the country. The aspirations of the people translate into growing demand for goods and services, and it would be a pity if this demand remains unmet because of the intransigence of policymakers.

Q: Do you think India can get back on track, given recent problems such as growing inflation, coupled with an economic slowdown?

A: Many of the problems are self-inflicted. The lack of strong leadership within the government has stalled decision-making, which is delaying the passage of economic reforms that are necessary for investment-led growth.

Q: So why consider investing in India?

A: The underlying fundamentals of the Indian economy remain strong, led by growing household income, a high saving rate that can be channeled into productive investments and good quality companies that can take advantage of these trends. In recent years, there has been a noticeable pick-up in economic activity in rural areas. That has provided some cushion to the overall economy.

Also, two-thirds of India's economy is led by domestic consumption, which helps to reduce volatility in corporate earnings. However, India's capital markets are entwined with global capital markets. As such, volatility remains a constant companion, and the importance of a longer investment time horizon cannot be overstated.

Q: Is there anything else U.S. investors might be unaware of about India?

A: The reason to get excited is not so much the macroeconomics, but the microeconomic prospects of individual companies. Many are world-class already. These sorts of companies span a wide gamut of sectors like services, pharmaceuticals, telecommunication and financials. Information technology services tend to grab the headlines, but the sector accounts for only 5 percent of gross domestic product and 1 percent of total employment.

Q: I hear plenty about the growth of China's middle-class, and resulting growth potential for Chinese stocks due to expansion of the domestic economy. Do you see similar potential in India?

A: India's demographics are in many ways more favorable than China's. The population is young, and the ratio of working-age people relative to those who are too young or old to work will improve. That is likely to support consumption growth for the next several years. However, in order to harness demographic dividends, the creation of employment opportunities needs to remain vital, otherwise there is a risk of social unrest.

___

Questions? E-mail the AP at investorinsight(at)ap.org