Participatory Notes


Participatory Notes commonly known as P-Notes or PNs are instruments issued by registered foreign institutional investors to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India – SEBI.

Participatory Notes

What are ‘Participatory Notes’

Participatory notes, also referred to as “P-notes,” are financial instruments used by investors or hedge funds that are not registered with the Securities and Exchange Board of India (SEBI) to invest in Indian securities. Any dividends or capital gains collected from the underlying securities go back to the investors. Indian regulators are against participatory notes because they fear that hedge funds acting through participatory notes will cause economic volatility in India’s exchanges.

Explaining ‘Participatory Notes’

Foreign institutional investors (FIIs) provide quick money entering the Indian capital market. Because of the short-term nature of investing, regulators have fewer guidelines for FIIs. To invest in Indian stock markets without the hassle of involvement with the regulatory approval process, FIIs trade P-notes.

What Participatory Notes Are

P-notes are offshore derivative instruments with Indian shares as underlying assets. Brokers and FIIs registered with SEBI issue the instruments and make investments on the FII’s behalf. Brokers must report their P-note issuance status to SEBI each quarter. The notes allow foreign investors with high net worth, as well as hedge funds and other investors, to invest in Indian markets without registering with SEBI. Investors save time, money and scrutiny associated with direct registration.

Pros and Cons of Participatory Notes

P-notes are easily traded overseas through endorsement and delivery. They are popular because investors anonymously take positions in Indian markets, and hedge funds anonymously carry out their operations. Some entities route their investments through P-notes to take advantage of certain countries’ tax laws.

Further Reading

  • The interesting story of participatory notes in India – [PDF]
  • Participatory politics, social cooperation, and economic stability – [PDF]
  • Indian Securities Market & Participatory notes: A corporate quandary – [PDF]
  • The promotion of participatory governance in the EU's external policies: compromised by sectoral economic interests? – [PDF]
  • An Analytical Study on'Use of Participatory Notes in Indian Equity Markets and Recent Regulatory Changes' – [PDF]