e rit ar et in ndia 14.17
(i) India’s rising current account deficit to the position limits as specified by SEBI
(which crossed an all-time high of 6.7 per from time to time.
cent by March 2013) which is creating (v) RFPI may offer cash or foreign sovereign
heavy drain of foreign exchange; and securities with AAA rating or corporate
(ii) The objective of attracting more FIs while bonds or domestic government securities,
the Western economies are under the spell as collateral to the recognised stock
of recession (cashing in the opprtunity). exchanges for their transactions in cash as
well as derivative segment of the market.
rfPis All investments made by that FIIs/QFIs
in accordance with the regulations prior to
In March 2014, the RBI simplified foreign registration as RFPI shall continue to be valid and
portfolio investment norms by putting in place taken into account for computation of aggregate
an easier registration process and operating limit.
framework with an aim to attract inflows. From
now onwards, the portfolio investor registered in ParticiPatory noteS (Pns)
accordance with the SEBI guidelines shall be called
Registered Foreign Portfolio Investor (RFPI)— A Participatory Note (PN or P-Note) in the Indian
the existing portfolio investor class, namely, context, in essence, is a derivative instrument
Foreign Institutional Investor (FII) and Qualified issued in foreign jurisdictions, by a SEBI registered
Foreign Investor (QFI) registered with SEBI shall FII, against Indian securities—the Indian security
be subsumed under it. The new guidelines for instrument may be equity, debt, derivatives or
RFPIs are as given below: may even be an index. PNs are also known as
Overseas Derivative Instruments, Equity Linked
(i) They may purchase and sell shares
Notes, Capped Return Notes, and Participating
and convertible debentures of Indian
Return Notes, etc.
companies through a registered broker
The investor in PN does not own the
on recognised stock exchanges in India
underlying Indian security, which is held by the
as well as purchase shares and convertible
FII who issues the PN. Thus, the investors in PNs
debentures, which are offered to public in
derive the economic benefits of investing in the
terms of relevant SEBI guidelines.
security without actually holding it. They benefit
(ii) Such investors can acquire shares or from fluctuations in the price of the underlying
convertible debentures in any bid for, or security since the value of the PN is linked with
acquisition of, securities in response to the value of the underlying Indian security. The
an offer for disinvestment of shares made PN holder also does not enjoy any voting rights in
by the central government or any state relation to security/shares referenced by the PN.
government.
(iii) These entities would be eligible to invest reAsons for the PoPulArity of Pns
in government securities and corporate The reasons why PNs became such a popular
debt, subject to limits specified by the ruote for foreign investors to invest in the Indian
RBI and SEBI from time to time. security market may be understood through the
(iv) Such investors would be permitted to following points:
trade in all exchange-traded derivative (i) One of the primary reasons for the
contracts on the stock exchanges, subject emergence of the PN (an ‘off-shore