Participatory Notes (P- Notes), Advantages, Disadvantages & why it is used?

What are participatory notes (P- Notes)?

Participatory notes also known as (P-Notes). Participatory Notes are financial instruments used by foreign investors for making investment in India without being registered with securities and exchange board of India (SEBI).

Why Participatory Notes used?                        

To invest the money in P-notes, investors do not require any registration with SEBI and because of this Participatory Notes are used by foreign or overseas investors.

Advantages of Participatory Notes

  1. By endorsement or delivery, participatory notes are easily transferable.
  2. By the use of participatory notes owner name of underlying securities remain hidden which help them to save them from Indian law.
  3. Investors will take all benefits like capital gains or dividends arising from underlying shares.

Disadvantages of Participatory Notes

  1. Owner name of underlying securities is not clear.
  2. Indian regulator fear that hedge funds acting through P-Notes can make economy unstable
  3. It is also the way through which black money enters into system.

Recent News of SEBI

In order to discourage foreign portfolio investors from issuing participatory notes, SEBI planned to impose $ 1,000 in each participatory Notes issued by foreign portfolio investors in every three year starting from April 1 of this year. This effort made by SEBI to minimize the exposure which foreign investors take from Indian equity market and also to check whether this product is used to enter black money into the Indian economy. SEBI make this proposal to increase transparency in the Indian equity market.