October 19, 2007

Important Information about (PN) Participatory Notes

What is Participatory Notes?

Participatory Notes (PNs) are nothing but financial instruments which are generally used by investors or hedge funds that are not registered with the Securities and Exchange Board of India or Sebi to invest in Indian securities.

That means if you are a foreign investor not registered with Sebi, you can still invest in Indian markets through PNs and how? In such cases, Indian-based brokerage houses will buy the securities on your behalf and then issue PNs to you. Any dividends or capital gains collected from the underlying securities will keep going back to you.

PNs along with other instruments like Equity Linked Notes and Capped Return Notes are called Offshore Derivative Instruments or ODIs. ODIs are generally issued to overseas investors and they are so called as they derive their existence from the ownership of underlying shares in an Indian company.

Equity Linked Notes or ELNs are instruments whose return is determined by the performance of a single equity security, a basket of equity securities or an equity index. Capped Return Notes, as the name suggests, have a pre-established profit cap.A

Simply speaking, all these are bilateral contracts between FIIs and investors for taking exposure in specific stocks without registering themselves with SEBI.