What NRIs should invest in

Ask any Non-Resident Indian about his mutual fund portfolio and there is very good chance that Morgan Stanley India Investment Fund (MSIIF), an exchange-traded fund (ETF), features in it. A lot of NRIs want to know if there is a better alternative to Morgan Stanley ETF in the domestic mutual fund segment.

Before we analyse whether MSIIF is a better bet against its counterparts in India, let us first understand some basic characteristics of ETFs. ETFs are close-ended funds that are bought and sold on the stock exchange.

So ETFs, despite being close-ended are liquid. Since ETFs are traded on the exchange, they assume the characteristic of a company stock/share in one very important aspect -- pricing.

Stocks trade at a price determined by the market. The price, in turn, is determined by several factors like company management, competitive strengths, profitability and overall economic environment. Even technical factors like demand and supply in a company's shares has an impact on the stock price.
The stock price is almost always different from the 'value' of the share. If the stock market price is higher than the book value, a share is said to command a premium to its book value. If the stock price is lower than the book value, then its said to be available at a discount to book value.
Much like stocks, ETFs have a stock market price. Since an ETF is a mutual fund, it has an NAV (net asset value) as well, which is the value of its investments net of expenses (like fund management, sales and marketing). You might say that the NAV is the equivalent of the book value in the case of a company.
The ETF's price on the stock exchange is rarely the same as its NAV. ETF's usually trade at a price that is lower to the NAV, i.e. they trade at a discount to their NAV. When the ETF price is high"