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