Correct Option
(D) Participatory Notes (P-Notes) are derivative instruments issued by registered Foreign Portfolio Investors (FPIs) to overseas investors. These instruments allow foreign entities to invest in the Indian stock market without directly registering with the Securities and Exchange Board of India (SEBI). P-Notes derive their value from underlying Indian securities, and their returns typically mirror those of these assets. While offering quick access and a degree of anonymity, P-Notes have faced scrutiny due to concerns regarding transparency, potential for money laundering, and tax evasion.
Incorrect Options
Option (1) Certificate of Deposit: A Certificate of Deposit (CD) is a short-term money market instrument issued by banks and financial institutions to raise funds. It is a time deposit that restricts holders from withdrawing funds on demand. CDs are not used by foreign portfolio investors to facilitate overseas investment in the Indian stock market.
Option (2) Commercial Paper: Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. It is typically issued by highly-rated corporate borrowers, primary dealers, and All-India Financial Institutions to meet their short-term funding requirements. CPs are not mechanisms for overseas investors to participate in the Indian stock market through FPIs.
Option (3) Promissory Note: A Promissory Note is a financial instrument containing a written promise by one party (the maker or issuer) to pay a definite sum of money to another party (the payee) either on demand or at a specified future date. While it is a debt instrument, it does not serve as a means for foreign portfolio investors to issue instruments for overseas investors to access the Indian stock market indirectly.