Investment through Participatory Notes (P-Notes) into the capital market has hit a 15-month low of Rs 2.35 lakh crore (about $16 billion) at the end of December.

P-Notes, mostly used by overseas HNIs (High Net Worth Individuals), hedge funds and other foreign institutions, allow investors to invest in Indian markets through registered foreign institutional investors (FIIs).

This saves time and cost for them, but the flip side is that the route can also be used for round-tripping of black money.

According to SEBI data, the total value of P-Note investment in Indian market (equity, debt and derivatives) declined to Rs 2,35,534 crore at the end of December from Rs 2,54,600 crore in the previous month.

This is the lowest level since September 2014, when the cumulative value of such investments stood at Rs 2.22 lakh crore.

In October, the investment was at Rs 2.58 lakh crore through this route.

The total outstanding value of P-Notes witnessed a steady rise since January and the momentum continued till March.

However, investments through this route registered a drop in April, but hit a seven-year high in May. The inflows slipped in the subsequent three months (June-August) but marginally rose in September and October and again fell in November as well as in December.

The drop in investment via P-Notes during June-August came when the Supreme Court-appointed Special Investigation Team (SIT) on black money asked SEBI to review its regulations on participatory notes to help identify the end users of these instruments.

However, the government later said it had no intention of banning this financial instrument overnight.

The quantum (percentage) of FII investments via P-Notes fell to 10.1 per cent from 11 per cent.

Till a few years ago, P-Notes used to account for more than 50 per cent of total FII investment, but their share has fallen over the years after SEBI tightened the disclosure norms and other related regulations.

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