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Foreign funds registered with India's markets regulator and with operations at GIFT City can issue so-called participatory notes, the financial services regulator at GIFT said late on Thursday.

Participatory notes (P-Notes) are issued by funds and banks to overseas investors that wish to invest in stock markets without registering themselves in India.

The International Financial Services Centre Authority (IFSCA), which regulates financial services at GIFT City in Gujarat state, already allows banks to issue P-Notes.

Foreign funds issuing the notes would need to meet compliance requirements of IFSCA and the Securities and Exchange Board of India.

Authorities have been easing norms for foreign funds that have set up shop in GIFT City, which seeks to become a key financial centre.

Earlier this week, foreign funds at GIFT City were allowed to take full investment from non-resident Indians.

Owing to their opaque nature, P-Notes have long faced heightened scrutiny and stricter compliances from India, forcing these structures to be issued from overseas jurisdictions.

The latest relaxation could help in shifting some of these structures to India's GIFT City, analysts said.