Introduction:
Participatory Notes (PNs) are financial instruments used by foreign institutional investors (FIIs) to invest in the Indian stock market. PNs are issued by registered FIIs to overseas investors who wish to invest in the Indian market without undergoing the process of direct registration with the Securities and Exchange Board of India (SEBI).

Explanation:
Participatory Notes are associated with Foreign Institutional Investors (FIIs). Here's a detailed explanation of why PNs are associated with FIIs:

1. Definition of Participatory Notes:
Participatory Notes, also known as P-Notes or PNs, are offshore derivative instruments issued by registered FIIs to overseas investors. These instruments allow investors to indirectly participate in the Indian stock market without being directly registered with SEBI.

2. Purpose of Participatory Notes:
The main purpose of PNs is to provide liquidity to foreign investors who are not registered with SEBI but want to invest in the Indian market. It allows them to gain exposure to Indian securities without going through the registration process, thus reducing administrative hurdles and time.

3. Issuance and Regulation:
Participatory Notes are issued by registered FIIs who hold a portfolio of Indian securities. These FIIs issue PNs to overseas investors based on their investment in the underlying Indian securities. However, it is important to note that PNs are subject to certain regulations and disclosure requirements imposed by SEBI to ensure transparency and prevent money laundering.

4. Advantages of Participatory Notes:
- Flexibility: PNs allow foreign investors to easily enter and exit the Indian market without undergoing the registration process.
- Anonymity: PNs offer anonymity to investors as they can invest in the Indian market without revealing their identity to the Indian authorities.
- Cost-effective: PNs provide a cost-effective way for foreign investors to gain exposure to the Indian market without establishing a physical presence in India.

5. Controversies and Concerns:
Participatory Notes have been a subject of controversy and concerns due to their potential misuse for money laundering and tax evasion purposes. To address these concerns, SEBI has implemented stricter regulations and disclosure requirements for PNs, including the requirement for FIIs to know their ultimate beneficial owners.

Conclusion:
Participatory Notes (PNs) are financial instruments associated with Foreign Institutional Investors (FIIs). They allow overseas investors to indirectly invest in the Indian stock market without undergoing the registration process with SEBI. While PNs provide flexibility and anonymity to investors, they have also raised concerns regarding transparency and potential misuse. To address these concerns, SEBI has imposed regulations and disclosure requirements on PNs.