Reiterating that there was no change in policy on foreign institutional investors' investment in India, Securities and Exchange Board of India said on Friday that FIIs will have to phase-out derivative instruments like participatory notes issued to unregulated entities within five years even as it tightened disclosure norms.

Sebi clarified that instruments like PNs could be issued only to entities regulated by their home country regulator from February 3.

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To facilitate the process of transition, derivative instruments already issued and outstanding against unregulated entities would not be required to be terminated immediately, Sebi said in a release in Mumbai.

"Further any transfer of these instruments could be made only to other regulated entities only," it said.

FIIs issuing derivative instruments should exercise due diligence and maintain complete details of the investors, based strictly on "know you client" principles.