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Topics Covered: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.



Participatory notes of Overseas Derivative Instruments have a tendency to raise the hackles of the regulators.

  • Outstanding P-notes hitting a 31-month high in November is likely to have caused considerable consternation.

What’s the Concern?

  • These instruments have gained notoriety on account of their rampant misuse prior to 2008.
  • The anonymity provided by P-notes, where the final owner can be concealed from regulators, had led to entities using this route to round-trip funds.

What has the SEBI said?

There is no real cause for alarm; these instruments account for only 2 per cent of FPI assets currently.

But, why there is an increase in value of outstanding P-notes?

  1. The rally in stock prices has resulted in inflating the value of existing P-note holdings.
  2. There has been a great surge in FPI inflows this fiscal, with investments so far exceeding ₹2,42,000 crore.

What are Participatory Notes?

Participatory Notes or P-Notes (PNs) are financial instruments issued by a registered foreign institutional investor (FII) to an overseas investor who wishes to invest in Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India (SEBI).

Key points:

  1. P-Notes are Offshore Derivative Investments (ODIs) with equity shares or debt securities as underlying assets.
  2. They provide liquidity to the investors as they can transfer the ownership by endorsement and delivery.
  3. While the FIIs have to report all such investments each quarter to SEBI, they need not disclose the identity of the actual investors.


Prelims Link:

  1. What are P- Notes?
  2. Difference between FPI vs FII
  3. Features of P- notes.

Mains Link:

What are the concerns regarding P- Notes? How can they be addressed? Discuss.

Sources: the Hindu.