What are Participatory Notes or P-Notes?

What are Participatory Notes or P-Notes?

·       Participatory Notes are financial instruments issued by SEBI registered Foreign Institutional Investors (FIIs) to overseas investors who intend to invest in Indian securities without getting into hassle of regulatory approvals and registration.

·       P-Notes can be looked upon as offshore derivative instruments where the Indian shares are the underlying.

 

Why P-Notes?

Ø Overseas investors including Hedge Funds, HNIs, etc often want to tap opportunities to invest in the Indian stock market but find it cumbersome to go through stringent regulatory processes for registration with Securities and Exchange Board of India.

Ø Hence the SEBI registered Foreign Institutional Investors (FIIs) issue Participatory Notes to these investors and the funds raised from these overseas Hedge Funds, HNIs and other investors are invested into the Indian shares.

Ø The holders of P-Notes will receive the dividends and capital gains from the underlying shares.

 

Considerations

·       The holders of P-Notes are anonymous to the Indian financial system, as the ultimate beneficiary remains hidden. This concerns Indian regulators to gauge if the source of money entering the Indian market is bona fide.