Question
UPSC Prelims 2019 Question:
Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly?
Answer (Detailed Solution Below)
Option 4: Participatory Note
Detailed Solution
Explanation:
- A Participatory Note (PN) is a derivative instrument issued by registered Foreign Institutional Investors (FIIs) to overseas investors who wish to invest in Indian stock markets without registering themselves directly. It is issued against Indian securities. The investor in PN does not own the underlying Indian security, which is held by the FII, which issues the PN. Thus, the investors derive the economic benefits of investing in the security without holding it. They benefit from fluctuations in the price of the underlying security because the value of the PN is linked with the value of the underlying Indian security. The PN holder does not enjoy any voting rights in relation to the security/shares referenced by the PN.
Therefore, option (4) is the correct answer.
Subject: Economics | Foreign Trade and Investment
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