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Role of FIIs, DII/MF/QIB in Capital

Markets,Participatory Notes and Its

Impact and Process,Index Formation
Abhishek Shrivastav
Janki Patel
Manju Yadav
Nidhi Sharma

Who are Institutional Investors?

Organizations, Individuals or groups of investors

that trades securities in large enough share

quantities that they qualify for preferential treatment
and lower commissions.
Institutional investors face fewer protective
regulations because it is assumed that they are more
knowledgeable and better able to protect themselves.

Foreign Institutional Investors

Definition: An investor or investment fund that is

from or registered in a country outside of the one in

which it is currently investing.

FIIs Role in Capital Markets:

Reduced cost of equity
Stability of BoP
Knowledge Flows
Improving market efficiency

FII trading activity on NSE and BSE in Capital

Market Segment(In Rs. Crores)

Categor Date




Domestic Institutional Investors

DII is used to denote an investor mostly of the form

of an institution or entity , which invests money in

the financial markets of their own country where the
institution or entity was originally incorporated.

DIIs Role in Capital Markets

Strengthening of Corporate Governance
Price building mechanism

Domestic Institutional Investors trading

activity on NSE and BSE on Capital Market
Catego Date
Value value


24- Oct- 800.89


1536.29 -735.4

Mutual Funds
According to SEBI (Mutual Funds) Regulations,

1996, a mutual fund is a fund established in the

form of a trust to raise money through the sale' of
units to the public or a section of the public under
one or more schemes for investing in securities
including money market instruments."

Role of MFs in Capital Market

Mobilizes Savings
Boost To Capital Market
Economies Of Scale
Safety And Liquidity
Stability to stock market

Qualified Institutional Buyers

Qualified Institutional Buyers are those institutional

investors who are generally perceived to possess

expertise and the financial muscle to evaluate and
invest in the capital markets.

In terms of clause 2.2.2B (v) of DIP Guidelines, a

'Qualified Institutional Buyer' shall mean:
a. Public financial institution as defined in section 4A of

the Companies Act, 1956;

b. Scheduled commercial banks;

c. Mutual funds;
d. Foreign institutional investor registered with SEBI;
e. Multilateral and bilateral development financial institutions;
f. Venture capital funds registered with SEBI.
g. Foreign Venture capital investors registered with SEBI.
h. State Industrial Development Corporations.
Insurance Companies registered with the Insurance Regulatory and Development Authority
ii. (IRDA).

j. Provident Funds with minimum corpus of Rs.25 Crores

k. Pension Funds with minimum corpus of Rs. 25 Crores)

Role of QIBs in Capital Market

Stability to Stock Market

Participatory Notes & Its


Participatory Notes
Commonly known as P-Notes or PNs
Instruments issued by registered foreign institutional

investors (FII) to overseas investors, who wish to

invest in the Indian stock markets without registering
themselves with the market regulator, the Securities
and Exchange Board of India - SEBI.

Used for making investments in the stock markets.

Used outside India for making investments in shares

listed in the Indian stock market.

In the Indian context, foreign institutional investors
(FIIs) and their sub-accounts mostly use these
instruments for facilitating the participation of their
overseas clients, who are not interested in
participating directly in the Indian stock market.
Aid investors who do not want to register with SEBI
and reveal their identities to take positions in the
Indian market.

Advantages of participatory notes:

Anonymity: Any entity investing in participatory notes is not required to register

with SEBI, whereas all FIIs have to compulsorily get registered. It enables large
hedge funds to carry out their operations without disclosing their identity.
Ease of trading
Tax saving
It strengthen rupee against the dollar.

Disadvantages of P-notes:
Indian regulators are not very happy about participatory notes because they have no
way to know who owns the underlying securities. It is alleged that a lot of
unaccounted money made its way to the country through the participatory note route .


A Stock index or Stock Market Index is a

measurement of the value of a section of the stock

It is computed from the prices of selected stocks

(typically a weighted average)

It is a tool used by investors and financial

managers to describe the market,and to compare

the return on specific investments.

Types of Indices
A 'world' or 'global' stock market index includes

(typically large) companies without regard for where

they are domiciled or traded.
Two examples are MSCI World (Morgan Stanley

Capital International) and S&P Global 100.(Standard

and Poors)

Some indices,such as the S&P 500, have multiple

These versions can differ based on how the index

components are weighted and on how dividends are

accounted for.
For example, there are three versions of the S&P 500

index: PRICE RETURN, which only considers the price

of the components, TOTAL RETURN, which accounts
for dividend reinvestment, and NET TOTAL RETURN,
which accounts for dividend reinvestment after the
deduction of a withholding tax

Index Representation (S & P)

Index Representation (MSCI)

Thank you