Participatory Note
Also written Participatory Note (P-Note) · P-Note · P-Notes · PN
An instrument issued by a SEBI-registered Foreign Portfolio Investor to overseas investors, giving them exposure to Indian securities without registering with SEBI themselves.
In plain language
Some foreign investors want exposure to Indian shares. But they do not want to register with SEBI as a Foreign Portfolio Investor.
A Participatory Note solves that problem. A SEBI-registered FPI issues the note. It then sells the note to the offshore investor. That investor gets the economic gain or loss on the referenced Indian shares. But the investor never registers with SEBI, and never holds the shares directly.
How it works
The workbook: "Participatory Notes (P-Notes or PNs) are instruments issued by SEBI registered foreign portfolio investors to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator... P-Notes provide access of Indian securities to these investors." Chapter 2.4.2 lists P-Notes as 1 of several institutional-participant structures, alongside FPIs, mutual funds, insurance companies and pension funds.
Only the issuing FPI is registered with SEBI and appears in any Indian regulatory record. The P-Note holder's identity sits one step removed, which is why P-Notes have historically drawn regulatory attention over the anonymity of the ultimate beneficial owner.
A worked example
Illustrative. A US-based hedge fund that does not want to complete SEBI's FPI registration instead buys Rs 50 crore of Participatory Notes from a SEBI-registered FPI, referencing a basket of Nifty 50 stocks.
If that basket rises 10% over the year, the issuing FPI passes that 10% gain (minus its own fee) through to the hedge fund under the P-Note contract. The hedge fund never holds the underlying Indian shares directly and never appears on any Indian company's shareholder register — only the issuing FPI does.
Why NISM asks about it
Chapter 2.4.2 (Institutional Participants) introduces P-Notes alongside FPIs, mutual funds, insurance companies and pension funds. Expect a question testing who is actually registered with SEBI in a P-Note structure, or what a P-Note is used for.
Common exam traps
- The P-Note holder is not a registered Indian market participant. Only the issuing FPI is registered and appears on any register — the P-Note holder's exposure is entirely contractual, with the FPI as counterparty.
Where this is taught
Free preparation for NISM Series XVRelated terms
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- Euro bondAn external bond issued in a foreign country in a currency that is not the local currency of that country — nothing to do with Europe or with the euro.