New Delhi: Proper monitoring is in place to check investments made through Participatory Notes and there have been huge inflows of genuine funds through the instrument this year, the government said on Tuesday.
Minister of State for Finance Jayant Sinha informed the Rajya Sabha that necessary Know Your Customer (KYC) guidelines have been followed for the beneficial owner of the PN.
Responding to a query on whether it is a fact that huge investments are flowing into the country through PNs during the current year, Sinha replied in the affirmative.
Investments through Participatory Notes (PNs) rose to nearly seven-year high of over Rs 2.65 lakh crore at the end of October 2014.
There have been long-standing concerns about possible misuse of Offshore Derivative Instruments, or P-Notes, for money laundering and other such purposes, but these instruments are also used widely by genuine investors looking to save on time and costs attached with direct investments.
Under Sebi (Foreign Portfolio Investors) Regulations, 2014, FIIs/FPIs (Foreign Institutional Investors/Foreign Portfolio Investors) issuing PNs are required to report to the capital market regulator on a monthly basis.
Among others, name and jurisdiction of the end beneficial owner of PNs as well as underlying trades that occur in the Indian securities market on the basis of these notes should be provided to Sebi.
To another query on whether government is properly monitoring such investments through Sebi and other financial investigation authorities for safeguarding the country's financial system, Sinha replied in the affirmative.
According to Sinha, FIIs/FPIs are also required to provide an undertaking that they "have not issued/subscribed/ purchased PNs directly to/from non-resident Indians/ Indian residents".
Besides, foreign portfolio investors should fully disclose to Sebi about any information concerning the terms of and parties to offshore derivative instruments such as PNs, equity linked notes or any other such instruments as and when the regulator requires it.
