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Indian Economy

Investments through P-notes

  • 18 Apr 2019
  • 2 min read

Investments through Participatory Notes in domestic capital market rose to Rs 78,110 crore at the end of March,2019 amid positive market sentiments.

  • Participatory notes (P-notes) are issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to be a part of the Indian stock market without registering themselves directly after going through a due diligence process.
  • The increase in P-notes investment is in line with the higher net inflows of Foreign Portfolio Investors (FPIs) in the cash segment.

Foreign Portfolio Investment

  • Foreign portfolio investment (FPI) consists of securities and other financial assets passively held by foreign investors.
    • It does not provide the investor with direct ownership of financial assets and is relatively liquid depending on the volatility of the market.
    • Foreign portfolio investment is part of a country’s capital account and is shown on its Balance of Payments (BOP).
    • The BOP measures the amount of money flowing from one country to other countries over one monetary year.
  • The investor does not actively manage the investments through FPIs, he does not have control over the securities or the business. However, since the investor’s goal is to create a quick return on his money, FPI is more liquid and less risky than Foreign Direct Investment (FDI).
  • In contrast, FDI lets an investor purchase a direct business interest in a foreign country. The investor’s goal is to create a long-term income stream while helping the company increase its profits.
  • The investor controls his monetary investments and actively manages the company into which he puts money. However, because the investor’s money is tied up in a company, he faces less liquidity and more risk when trying to sell his interest.
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