With Indian regulators clamping down on derivates contracts from outside markets, the only exchange-traded note (ETN) providing direct access to U.S. investors has been in a stop-and-start mode issuing new shares.  

The net result is that iPath MSCI India ETN (NYSE Arca: INP) now isn't acting like an open-end vehicle, say critics. At one point late last year, the ETN's price was trading at around a 20% premium to its net asset value. Even after this year's negative 16% return, it's still selling at a premium (see related story).

But retail investors in the U.S. are about to get a second option. In early February, WisdomTree Investments plans to launch the WisdomTree India Earnings ETF.

"This is going to be a welcome alternative in the ETF marketplace. And it's going to offer broader representation of the Indian market," said Keith Newcomb, a Nashville, Tenn.-based advisor.

The ETF's benchmark includes 150 locally listed companies. That compares to around 62 companies the MSCI Index tied to the iPath uses, says Bruce Lavine, WisdomTree's president and chief operating officer. "We believe that's really important when you're dealing with an emerging market," he said.

The WisdomTree India Earnings Index also screens for profitability as a criteria. "We only include Indian companies that've been profitable in the last reported 12 months," Lavine said.

Stocks are weighted in the index by "their contribution to the earnings stream of corporate India," he added. "We look at trailing net income and work with S&P in those calculations."

The rival ETN is market-cap size weighted. "The Indian market has been soaring for years now," Lavine said. "Our fund gives investors an ability to buy into India at a lower price-earnings ratio and in a more diversified underlying index."

The fund will trade on the NYSE Arca under the symbol "EPI." Its expense ratio will be 0.88%, which will serve as the ETF's permanent cap as well. That's slightly less than the iPath's 0.89% expense ratio.

"Another key is that this fund has a level of certainty in regards to taxation as you see with other ETFs," he said. "We won't use any derivates, or participatory notes, in our ETF."

Use of derivates was a key sticking point for Indian authorities in their efforts to slow the flow of "hot money" by foreign investors into one of the world's fastest-growing economies.

Advisor Newcomb agrees, pointing to recent tax rulings that make ETNs less attractive than ETFs under certain situations.

"There are some closed-end vehicles covering India," he said. "But they've got less transparency than an open-end ETF and you've got to juggle the premium-discount swings. That can be a real problem at times."