With stocks in India's major indexes compounding at an annualized rate topping more than 20% in the past decade, it's not surprising that the exchange-traded funds (ETFs) market focusing on that country is about to expand threefold.

But do long-term-minded investors really need so much of a still-emerging marketplace?

"People ask why they need more exposure to India," said Luciano Siracusano, research director at WisdomTree Investments. "The Indian economy is growing faster than the rest of the world. And it's an excellent diversifier for U.S.-stock focused portfolios."

But other broader emerging markets ETFs already offer exposure to India. For example, the Vanguard Emerging Markets ETF (AMEX: VWO) had about 8.3% of its holdings invested in that market heading into 2008.

India is becoming a bigger part of cap-weighted indexes, points out Siracusano and Ranga Nathan, managing director at Indus Advisors in Chicago. Both WisdomTree and PowerShares are racing to join an existing exchange-traded note (ETN) that focuses on India. The PowerShares ETF will follow an index developed by Indus.

Race Is On To Capture Country's Growth

The country's market cap size is trading around $1.1 trillion now. That would equate to about 2.5% of the world's total. By contrast, India's market cap represented some 0.2% of the world in 1989.

"So it has increased in size 12-fold," said Siracusano. "And most of that growth has come in the past five years."

The country's gross domestic product rose from being a fraction of the world's total to 6.3% in 2006. India's share is expected to keep rising and reach 6.6% in 2008.

Emerging markets has been the fastest-growing part of the equity markets worldwide not only in the past five years but also the past 10 years, says Siracusano.

"The question is whether you're comfortable with the weightings of India in the market-cap-weighted emerging markets ETFs out there," he added. "Some people want to make their own country allocations and this is an easy way to do it."

The WisdomTree Emerging Markets High-Yielding Equities ETF (NYSE: DEM) doesn't give India a large weighting since the country's tax policies tend to work against companies offering higher dividends, Siracusano says.

But emerging markets as a whole are paying roughly 10% of the global dividend stream, according to WisdomTree research. Although he doesn't give specific recommendations on asset allocation issues, Siracusano adds: "We think that 10% range is a good starting place for diversification purposes in emerging markets."

New Ways To Slice And Dice India

For those interested in juicing up their exposure more to India, later this month some definite alternatives should be available.

Currently on the market is the iPath MSCI India ETN (NYSE Arca: INP). But it uses offshore derivate instruments, or ODIs. The Indian government has clamped down on use of ODIs in recent months to slow the flow of "hot money" coming into the economy.

With regulators restricting trade in derivates contracts by outside investors, critics argue that the net result is that INP now isn't acting like an open-end vehicle. At one point late last year, the ETN's price was trading at around a 20% premium to its net asset value.

As a result, the iPaths ETN now acts more like a closed-end fund, says Theodore Feight, president of Creative Financial Design in Lansing, Mich.

But he doesn't necessarily see that as a bad development. "I see a lot of the emerging markets ETFs trading like closed-end funds," Feight said. "So the iPaths ETN for India isn't out of the ordinary."

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