Question 97 from UPSC CSE 2019 - Economics

Question

Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly?

IASCODEX · Accepted Answer

Correct Option: D. Participatory Note

Strategy: Identify the option that specifically allows foreign investors to access Indian securities markets without direct registration requirement. The keyword here is 'issued by registered foreign portfolio investors' and 'without registering themselves directly.' Only Participatory Notes serve this function, as other instruments like Certificate of Deposit, Commercial Paper, and Promissory Note are unrelated to indirect foreign investments in equities.

Key Info: Participatory Notes (P-Notes) are overseas derivative instruments issued by registered Foreign Portfolio Investors (FPIs) or FIIs to overseas investors who are not registered with SEBI but wish to invest in Indian securities. P-Notes simplify entry to the Indian capital market and aid foreign investors who want anonymity and ease of investment. They have been permitted since 2000 to enhance foreign portfolio investments but are monitored due to concerns about money laundering and regulatory transparency.

- Certificate of Deposit (CD) is a negotiable money market instrument issued by commercial banks and select financial institutions in India, used for short-term fund raising, not for making investments in equity markets.
- Commercial Paper (CP) is an unsecured, short-term, negotiable promissory note issued by companies to meet their short-term liabilities in the domestic market, and is not an instrument for indirect foreign equity investments.
- A Promissory Note is a legal financial instrument wherein one party promises in writing to pay a specific sum to another, on demand or at a set date; it is not an instrument related to indirect capital market investment.
Participatory Notes are regulated by SEBI under its FPI regulations to ensure monitoring and disclosures. Examples of investors using P-Notes include hedge funds, high net worth individuals, and other overseas investors seeking access to Indian markets without direct registration.

IASCODEX · Answer

Option A: Certificate of Deposit

IASCODEX · Answer

Option B: Commercial Paper

IASCODEX · Answer

Option C: Promissory Note