Participatory Note

What is Participatory Note? 

Participatory Note (PN) is an instrument issued by registered Foreign Institutional Investor (FII) to investors abroad, who want to invest in Indian stock Markets without registering themselves with the market regulator, the Securities and Exchange Board of India (SEBI). Trading through PN is easy because these are like contract notes which are transferred through endorsement and delivery. 

PN are said to constitute 15-20 percent of cumulative investments by FIIs. In 2007 SEBI had proposed curbs on PNs. This led to immediate reaction and the markets came cradling down. In view of this sharp reaction, the proposal was shelved. 

PNs are mostly used by overseas High Net Worth Individuals (HNIs), hedge funds and other foreign institutions. These instruments allow them to invest in Indian markets through registered. Foreign Institutional Investors. (FIIs). These save time and costs associated with direct registrations According to a news agency report, SEBI data shows foreign investment into Indian markets through PNs rose to 1.64 lakh crore rupees (USD 30 billion) in February 2013. In January 2013 PN investment in Indian market was 1.62 lakh crore rupees. Investment into Indian shares through PN was Rs 1.77 lakh crore rupees in November 2012 and 1.75 lakh crore rupees in October 2012 on policy reform measures taken by the government and its initiative to address tax related issues.  

The quantum of FII investment through PNs increased to six month high at 12.33 percent in February 2013 from 11.83 percent in previous month. This was the highest figure since August 2012.  

Until recently PNs used to account for more than 50 percent of total FII investments but their share has fallen after SEBI tightened its disclosure and other regulations for such investment. Since 2009 PNs constitute 15-20 percent of FII holdings in India, while it used to be 25 to 40 percent in 2008. During 2007 PNs share was as high as 50 percent.