1. Foreign institutes must understand the gambi of Participatory notes as Participatory notes (P-Notes) are financial instruments used by hedge funds not registered with Sebi. It is a means where by registered FIIs issue P-Notes to overseas investors and thus these organisations are providing means to invest in India without registering. It is a means by virtue of which the Hedge funds are able to invest in Indian stocks through custodians in India.

2. Now a million dollar question arises that how these P-Notes work and answer lies to it in a simple statement that Indian based brokerages buy Indian based securities and then issue P-Notes to foreign investors and as a net result any income generated from it in form of dividends or capital gains is collected from the underlying securities and same is delivered to the investors.

3. Now everybody wants to save money and same is also applicable for Participatory notes where by FIIs use the route of Mauritius as India has a double taxation avoidance agreement (DTAA) with Mauritius. It means that entities registered in Mauritius need not to be taxed in India and one can further amplify this fact by stating this statement that capital gains from the sale of shares is taxable in the country of residence of the shareholder and thus one is able to save considerable money.