Participatory notes (p-notes) are instruments used by foreign funds / investors who are not registered with SEBI but are interested in taking exposure to Indian securities. The associates of India-based foreign brokerages generally issue p-notes overseas.
Institutional investors that do not wish to register with SEBI but would like to take exposure in Indian securities also use the pnotes. Brokers buy or sell securities on behalf of their clients on their proprietary account and issue such notes in favour of such foreign investors.
P-note investors place their order through brokerage houses. The brokerage houses then repatriate the dividends and capital gains back to these entities. Participatory notes are popular because they provide a high degree of anonymity, which enables certain entities to carry out their operations without disclosing their identity and that is why regulators are not comfortable with huge funds coming in via the p-notes route.
