Participatory Notes (P- notes)

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Foreign portfolio investors (FPIs) domiciled at the GIFT International Financial Services Centre (IFSC) and registered with the Securities and Exchange Board of India (Sebi) have been allowed to issue participatory notes.

About Participatory Notes:

  • These are often referred to as PNs or P-Notes.
  • These are financial instruments used by investors and hedge funds to invest in Indian securities, and no registration is required with the Security Exchange Board of India (SEBI).
  • Investments flowing in through PNs are considered as offshore derivative investments.
  • These are issued by registered foreign Portfolio Investors (FPIs) to overseas investors who wish to be part of the Indian stock market without registering themselves directly.
  • While the FIIs have to report all such investments each quarter to SEBI, they need not disclose the identity of the actual investors.

What is Foreign Portfolio Investment?

  • It refers to the purchase and holding of a wide array of foreign financial assets by investors seeking to invest in a country outside their own.
  • Foreign portfolio investors have access to a range of investment instruments such as stocks, bonds, mutual funds, derivatives, fixed deposits, etc.
  • FPI generally intends to invest money into the foreign country’s stock market to generate a quick return.
  • In India, foreign portfolio investment is regulated by the Securities and Exchange Board of India (SEBI). 

Q1: What are derivatives?

Derivatives refers to a type of financial contract whose value is dependent on an underlying asset, group of assets, or benchmark. These contracts can be used to trade any number of assets and carry their own risks.

Source: FPIs domiciled at GIFT City allowed to issue P-notes to investors