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P-Notes
Context:
Foreign Portfolio Investors (FPI), situated in the GIFT International Financial Services Centre, have been allowed to issue Participatory Notes (P-Notes) to Investors.
Digging deeper:
- Only SEBI-registered FPIs will use this option.
- At present, only banking units are allowed by the International Financial Services Centre Authority (IFSCA) to issue P-notes.
What are P-Notes?
- These are offshore financial instruments issued by FPIs or FIIs.
- They are intended for overseas investors to invest in India’s security markets without the need to register themselves with SEBI.
- The underlying assets in P-Notes are Indian stocks.
- They are categorised under offshore derivative investments (ODIs).
- According to the National Securities Depository Limited data, P-Notes account for around 2% of the total AUC (Asset Under Custody) of FPIs.
- They are a valuable tool for the Indian economy, allowing listed companies to quickly access funds and be drivers of economic growth.
Issues:
- Anonymity: Investors can enter Indian markets anonymously, and the credentials of the owner remain opaque.
- Tax Benefits: They are used by entities and individuals so that they can benefit from the tax laws in particular countries.
- Stringent Regulations: SEBI holds no database on P-Notes trading coming from FPIs.