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?
- (a) Certificate of Deposit
- (b) Commercial Paper
- (c) Promissory Note
- (d) Participatory Note ✓ UPSC's answer
Why the answer is (d)
• Participatory Notes (P-Notes) are offshore derivative instruments issued by SEBI-registered foreign portfolio investors to overseas clients who want exposure to Indian securities without registering with SEBI — option (d).
• The underlying shares are held by the FPI; the P-Note holder gets the economic benefit. SEBI has tightened KYC and curbed P-Notes because they can mask the identity of the ultimate investor.
• Certificates of Deposit (a) and Commercial Paper (b) are money-market instruments; a promissory note (c) is a generic debt instrument.
• Hence option (d).
Why the other options are wrong
- (a) Certificate of Deposit
- CDs are bank-issued money-market instruments.
- (b) Commercial Paper
- Commercial paper is corporate short-term debt.
- (c) Promissory Note
- A promissory note is a generic debt instrument, not an FPI product.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2019, held on 2 June 2019. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.