## Use of Participatory Notes in Indian Equity Markets and Recent Regulatory Changes

_IMF Working Papers, December 1, 2007_

## Source details

**Canonical URL:** [Use of Participatory Notes in Indian Equity Markets and Recent Regulatory Changes](https://www.imf.org/en/publications/wp/issues/2016/12/31/use-of-participatory-notes-in-indian-equity-markets-and-recent-regulatory-changes-21508)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/31/use-of-participatory-notes-in-indian-equity-markets-and-recent-regulatory-changes-21508/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/31/use-of-participatory-notes-in-indian-equity-markets-and-recent-regulatory-changes-21508/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/31/use-of-participatory-notes-in-indian-equity-markets-and-recent-regulatory-changes-21508/bundle-manifest.json)

## Bibliographic details
- Authors: Manmohan Singh
- Published: December 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451868548.001

---

### Scope and primary focus
- Examines the use of participatory notes (PNs) by foreign investors as a conduit for portfolio flows into Indian equity markets for more than a decade.
- Analyzes the broadening of India's foreign investor base, noting a bias towards hedge funds/unregistered foreign investors who invest primarily via PNs.
- Investigates paradox: although tax arbitrage via capital gains tax has "almost disappeared since July 2004", demand for PNs has increased since that date.
- Suggests reasons for the continued buoyancy of the PN market and explains the possible impact from recent regulatory changes.

### Key findings and observations
- PNs have been a significant conduit for portfolio flows into Indian equities for over a decade.
- The changing composition of foreign investors shows a bias toward hedge funds and unregistered foreign investors who rely on PNs.
- Despite the near elimination of capital gains tax arbitrage since July 2004, PN demand rose rather than fell.
- The paper articulates multiple reasons for persistent PN market activity and analyzes how recent regulatory changes could affect that market.

### Subjects and keywords
- Subjects: Capital gains tax, Currencies, Hedge funds, Securities, Stock markets
- Keywords: derivative instrument, hedge fund, investor, PN derivative leg, regulator, WP

---

## Content in this bundle

- **_wp07291**
  - [_wp07291 (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp07291.pdf.md){rel="alternate" type="text/markdown"}
  - [_wp07291 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2007/_wp07291.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/use-of-participatory-notes-in-indian-equity-markets-and-recent-regulatory-changes-21508_