Participatory Notes (P Notes)
P Notes or Participatory Notes are financial instruments employed to invest in the Indian stock markets, these are issued by registered FIIs to overseas investors who want to invest in India without registering (or because they cannot register due to SEBI rules).
The mechanism entails Indian brokerages buying/selling Indian securities and issuing P Notes to foreign investors who are liable to collect all capital gains and dividends accruing on the same. Many investors also prefer the P Note route as it offers certain tax advantages over the conventional FII route.
P Notes (often also known as Panic Notes!) are the only avenue for hedge funds to invest in the country and since they are known for causing volatility due to large and fast transactions their actions are monitored carefully by market regulators. Even though P Notes have been bringing in money for the Indian markets they are viewed with suspicion since there is no way of ascertaining the real owner of the underlying securities, which may even include terror outfits. Time and again restrictions have been imposed on the issuance and renewal of P Notes (October 2007 has been the latest instance).
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