Functions of Depository Participant – Account Opening

Learn these topics

• T+1 settlement date calculatorCalculator
• Contract note decoderCalculator
• How the Indian Stock Market WorksLesson
• Market, Limit and Stop OrdersLesson

More units in NISM Series VI

• Introduction to the Indian Capital Market8
• Introduction to Depository12
• Depository and its Business Partners10
• Functions of Depository Participant – Account Operations14
• Functions of Depository Participant – Transmission and Nomination14
• Functions of Depository Participant – Dematerialisation18
• Functions of Depository Participant – Trading and Settlement16
• Special Services – Pledge & Hypothecation12
• Special Services – Public Offering / Corporate Actions12
• Special Services – Debt Instruments & Government Securities6
• Foreign Portfolio Investors (FPI)4
• Investor Services6

Practise all of NISM Series VI

Exam format

All 18 questions on Functions of Depository Participant – Account Opening, with answers

1. Q1A prospective BO submits an account form with inconsistent identity details. A relationship manager asks the DP to activate it first and resolve the mismatch later. What is the appropriate response?

   • A

     Option A. Ignore the mismatch if the client is introduced by an existing customer

     Why it is wrong: An introduction does not replace required identity checks.

   • B

     Option B. Use the relationship manager’s identity temporarily

     Why it is wrong: Another person’s identity cannot be used as a placeholder for the BO.

   • C

     Option C. Activate it because the client has offered to deposit securities immediately

     Why it is wrong: An intended securities deposit does not verify the applicant’s identity.

   • D

     Option D. Resolve and verify the material KYC inconsistency before completing activation — Correct answer

   Answer: D. Customer due diligence must establish whose account is being opened and that the supporting details are consistent. Commercial urgency or an introduction does not cure a material mismatch. Temporary substitution of another person’s identity would undermine the entire ownership and audit trail, rather than provide a legitimate workaround. Remember: Account activation must follow satisfactory identification, not precede it as a sales favour.

   Hint, shown before you answer in practice mode: Common mistake: Treating KYC discrepancies as harmless clerical issues regardless of their effect on identity.

   VI-031mediumapplication

   Study this unit

2. Q2Why should a BO provide accurate bank-account details in the demat account?

   • A

     Option A. To replace the separate identity checks needed when the account is opened

     Why it is wrong: Bank information supports onboarding but does not eliminate the prescribed identity checks.

   • B

     Option B. To help credit cash benefits such as dividends and interest to the BO — Correct answer

   • C

     Option C. To show which ISIN stands for each of the securities held in the account

     Why it is wrong: ISIN identifies the security, not the investor’s bank destination.

   • D

     Option D. To authorise every future debit of securities automatically

     Why it is wrong: A dividend bank mandate is not an unrestricted debit authority.

   Answer: B. Bank details help the issuer/RTA route cash benefits to the investor. Securities and cash remain distinct records, so a correct bank mandate does not replace a demat identifier or authorise securities debits. Errors can result in failed or misdirected payment attempts even when the share balance itself is correct. Remember: Keep ownership data and payment mandates accurate for different operational reasons.

   Hint, shown before you answer in practice mode: Common mistake: Assuming a correct demat balance ensures that dividend payment details are also correct.

   VI-032easyapplication

   Study this unit

3. Q3Under the depository account-opening framework, how is a demat account for a minor ordinarily operated?

   • A

     Option A. In the minor’s name through a duly documented guardian — Correct answer

   • B

     Option B. In the minor’s name with unrestricted self-operation regardless of age

     Why it is wrong: The minor-account process requires the documented guardian’s operating role.

   • C

     Option C. Only after the minor reaches majority

     Why it is wrong: The framework permits a properly documented account before majority.

   • D

     Option D. In the guardian’s personal account with the minor as nominee

     Why it is wrong: A minor’s beneficial holding should not be confused with a guardian’s personal holding and nomination.

   Answer: A. A minor can be the account holder, with a guardian handling the account under the applicable documentation and authority. The minor’s ownership should not be confused with the guardian’s separate personal holdings. The guardian relationship is recorded and must be revisited when the minor attains majority. Remember: Ownership in the minor’s name and authority of the guardian are separate facts.

   Hint, shown before you answer in practice mode: Common mistake: Putting a minor’s investment into an adult’s personal account as though it were equivalent.

   VI-033mediumapplication

   Study this unit

4. Q4A minor BO reaches majority. What should the DP do before allowing operations on the adult-holder basis?

   • A

     Option A. Close the account and distribute holdings among all family members

     Why it is wrong: Majority does not create a general entitlement for other relatives.

   • B

     Option B. Complete the prescribed majority-related KYC and operating-authority changes — Correct answer

   • C

     Option C. Treat the change as a sale from the guardian to the adult holder

     Why it is wrong: The minor was the holder. Adulthood is not automatically a sale by the guardian.

   • D

     Option D. Retain the guardian’s operating authority indefinitely without review

     Why it is wrong: Majority requires the applicable update of authority and documentation.

   Answer: B. Attaining majority changes who can validly operate the account. The DP must complete the prescribed documentation and update the operating authority and relevant records. The securities do not become the guardian’s property, and the historical trail remains relevant. The precise account-continuation route must follow the depository’s current procedure. Remember: A change in legal capacity requires an update to the account’s authority framework.

   Hint, shown before you answer in practice mode: Common mistake: Treating a date-of-birth milestone as a change that needs no operational follow-through.

   VI-034mediumapplication

   Study this unit

5. Q5A company asks the DP to act on instructions signed by an employee. What is the key authority check?

   • A

     Option A. Whether the employee can quote the company’s BO account number without checking it

     Why it is wrong: An account number is an identifier, not proof of signing authority.

   • B

     Option B. Whether the employee has visited the branch before on behalf of the company

     Why it is wrong: Past visits do not replace the formal mandate.

   • C

     Option C. Whether the employee is an authorised signatory on the company’s recorded mandate — Correct answer

   • D

     Option D. Whether the employee personally owns at least one share of the company

     Why it is wrong: Personal shareholding does not automatically confer authority over the company’s demat account.

   Answer: C. A company acts through authorised persons. The DP must verify the relevant resolution/mandate and the signatory details maintained for the account. Personal shareholding, familiarity or knowledge of an account number does not establish corporate authority to move the company’s securities. Remember: For a non-individual BO, verify both the entity and the human authorised to act for it.

   Hint, shown before you answer in practice mode: Common mistake: Equating an employee’s seniority or familiarity with a valid recorded mandate.

   VI-035mediumapplication

   Study this unit

6. Q6For an HUF demat account, why is it important to distinguish the HUF from the Karta’s personal account?

   • A

     Option A. HUF holdings can be recorded only in the account of a nominee named by the Karta

     Why it is wrong: A nominee is not the account entity or its operating representative.

   • B

     Option B. All securities in the HUF account legally become the Karta’s personal investments

     Why it is wrong: Representative authority is not the same as personal beneficial ownership.

   • C

     Option C. The distinction matters only if the HUF’s securities are listed on an exchange

     Why it is wrong: Correct ownership identification matters for admitted securities whether listed or unlisted.

   • D

     Option D. The HUF is the recorded account holder, and the Karta acts as its representative — Correct answer

   Answer: D. The Karta operates in a representative capacity for the HUF. That does not make the HUF’s securities the Karta’s separate personal holding. Account naming, PAN and authority documentation must reflect the entity and representative correctly. This question does not assume a particular gender for the Karta or an outdated restriction on joint holders. Remember: Entity ownership must remain distinct from the individual authorised to represent it.

   Hint, shown before you answer in practice mode: Common mistake: Merging HUF and personal holdings because the same Karta gives instructions.

   VI-036mediumapplication

   Study this unit

7. Q7Must an investor use the DP that is linked to the broker through whom the investor trades?

   • A

     Option A. Yes. Using a different DP would change the issuer of the shares being bought

     Why it is wrong: The service provider does not change the identity of the security’s issuer.

   • B

     Option B. No. Another eligible DP can be used if valid settlement instructions are set up — Correct answer

   • C

     Option C. No. The reason is that a stock broker can never offer DP services as well

     Why it is wrong: A suitably authorised firm may provide both services.

   • D

     Option D. Yes. Every trade must be settled only through the DP that the broker itself runs

     Why it is wrong: The services need not be obtained from the same provider.

   Answer: B. Broker selection and DP selection are separate customer choices. Operational arrangements must still ensure that settlement instructions are accurate and timely, but there is no general requirement that the broker and DP be the same provider. A firm may perform both roles if appropriately authorised. Remember: Convenient integration is an option, not proof of a mandatory provider tie.

   Hint, shown before you answer in practice mode: Common mistake: Believing a three-in-one account is the only possible market-access structure.

   VI-037easyapplication

   Study this unit

8. Q8An investor has sold all securities and has a nil demat balance. Does nil balance alone mean the account must immediately be closed?

   • A

     Option A. Yes. Selling the last share counts as signing the closure form automatically

     Why it is wrong: A securities sale does not itself supply all closure instructions.

   • B

     Option B. No. The yearly fee creates a fictitious minimum share balance that keeps it open

     Why it is wrong: Fees do not create securities. The account may simply have a genuine zero balance.

   • C

     Option C. Yes. A nil balance is itself treated as a completed closure request

     Why it is wrong: A balance state and a valid closure request are different things.

   • D

     Option D. No. A demat account can stay open with no securities, subject to its terms — Correct answer

   Answer: D. A demat account records securities when held. It need not always contain a minimum quantity. A nil balance is different from a properly completed closure request. Applicable account charges and compliance requirements may continue while the account remains open, so the client should not confuse empty with closed. Remember: Zero holdings and account closure are different states.

   Hint, shown before you answer in practice mode: Common mistake: Assuming all account obligations stop automatically after selling the last holding.

   VI-038easyapplication

   Study this unit

9. Q9A settlement file contains an investor’s broker UCC and demat account identifier. Why must the mapping be checked rather than treating the two identifiers as interchangeable?

   • A

     Option A. The UCC and the BO ID are always the same number, so either one will do

     Why it is wrong: The two identifiers belong to different operational records.

   • B

     Option B. The UCC identifies the client for trading. The BO ID identifies the demat account — Correct answer

   • C

     Option C. The UCC is just another name for the ISIN of the security being delivered

     Why it is wrong: The UCC identifies a client relationship rather than an issue of securities.

   • D

     Option D. A valid UCC on the trade means the payout demat account does not need any checking

     Why it is wrong: Trading-client validity does not establish that every demat destination is correct.

   Answer: B. Trading-client identification and depository-account identification serve different systems. Correct linkage helps direct the securities to the intended beneficiary account. An error can obstruct or misdirect payout even when the trade itself was entered under the correct UCC. Verification of the mapped demat account is therefore a substantive control. Remember: Check the relationship between identifiers. Do not replace one with another.

   Hint, shown before you answer in practice mode: Common mistake: Using PAN, UCC, BO ID and ISIN as though they describe the same object.

   VI-039mediumapplication

   Study this unit

10. Q10A BO gives a standing instruction to receive securities credits. What does that instruction normally permit?

    • A

      Option A. Any broker to use the credited holdings as collateral for its own borrowing

      Why it is wrong: A credit standing instruction does not grant unrestricted collateral rights.

    • B

      Option B. Receiving credits and also sending out every debit, with no further authority needed

      Why it is wrong: Authority for incoming credits is not a general outward-transfer mandate.

    • C

      Option C. Receiving eligible securities credits without a new receipt instruction each time — Correct answer

    • D

      Option D. Automatic acceptance of every unrelated pledge invocation on the BO’s holdings

      Why it is wrong: Pledge invocation follows its own authority and process.

    Answer: C. A standing receipt instruction simplifies inward securities processing. It should not be read as an outward-transfer authorisation or a power to trade for the client. Debits continue to require the applicable valid instruction or authority, and client holdings remain segregated. Remember: Permission to credit an account is not permission to debit it.

    Hint, shown before you answer in practice mode: Common mistake: Interpreting a purchase waiver as a general power of attorney.

    VI-040mediumapplication

    Study this unit

11. Q11A BO requests a debit-only freeze on the whole demat account. Which ordinary movement is restricted by that freeze?

    • A

      Option A. Only a change in the market valuation displayed

      Why it is wrong: A freeze governs operations, not movement of market prices.

    • B

      Option B. Both inward and outward movements by definition

      Why it is wrong: A debit-only freeze should not be confused with a both-sides freeze.

    • C

      Option C. Securities moving out of the account — Correct answer

    • D

      Option D. Only securities coming into the account

      Why it is wrong: Blocking incoming securities is the purpose of a credit freeze.

    Answer: C. A debit-only freeze blocks outward securities movements within its scope. It is distinct from a credit freeze or a freeze on both sides. The account can still hold the same beneficial interest, and the market value can change even though debit processing is restricted. Other independent restrictions, if present, must also be considered. Remember: Read the freeze’s direction and scope before deciding which instruction is permitted.

    Hint, shown before you answer in practice mode: Common mistake: Assuming the word “freeze” always means every account function stops.

    VI-041mediumapplication

    Study this unit

12. Q12A CDSL account is frozen under a court order. The BO later sends a normal unfreeze request without any release from that authority. What should the DP do?

    • A

      Option A. Convert it automatically into a voluntary freeze that the BO can lift on request

      Why it is wrong: Re-labelling the restriction would not remove its legal basis.

    • B

      Option B. Remove the freeze, because a BO’s own written instruction always overrides a court order

      Why it is wrong: A client request does not override a binding court order.

    • C

      Option C. Close the account and move the frozen securities elsewhere to bypass the restriction

      Why it is wrong: An account transfer cannot be used to defeat the freeze.

    • D

      Option D. Keep the freeze until an order from the same or a higher authority permits release — Correct answer

    Answer: D. The authority that caused a freeze matters. A voluntary BO freeze can be handled through the BO’s prescribed release instruction, but a statutory-order freeze cannot be cancelled simply on customer request. The DP must respect the order and the required release authority. Shifting the account is not a lawful workaround. Remember: For unfreezing, verify not only identity but also the legal source of the freeze.

    Hint, shown before you answer in practice mode: Common mistake: Applying voluntary-freeze release rules to statutory freezes.

    VI-042hardapplication

    Study this unit

13. Q13A caller claiming to be the BO asks the DP to change the registered bank account immediately. What is the appropriate next step?

    • A

      Option A. Change the bank account first, and ask for evidence only if a dividend payment fails

      Why it is wrong: Post-payment checking is too late to serve the preventive purpose.

    • B

      Option B. Obtain and verify the request and proof through the prescribed authenticated process — Correct answer

    • C

      Option C. Change it simply because the caller can state the current share balance correctly

      Why it is wrong: Account information may be known or obtained by an unauthorised person.

    • D

      Option D. Accept the phone number shown on the incoming call as enough proof of who it is

      Why it is wrong: Caller identification alone does not prove the required authority.

    Answer: B. Payment-detail changes can redirect cash benefits and therefore need proper authentication and verification. Knowledge of holdings or caller identification is not a reliable substitute for the prescribed process. A control performed only after money is misdirected would not adequately protect the account. Remember: Sensitive account changes require authenticated instructions, not informal familiarity.

    Hint, shown before you answer in practice mode: Common mistake: Treating service speed as a reason to waive verification of payment details.

    VI-043mediumapplication

    Study this unit

14. Q14For a standard closure-cum-transfer of a joint CDSL account held as A, B and C into another account of the same holders, which destination is appropriate?

    • A

      Option A. Any account named by the broker, whoever the holders of that account are

      Why it is wrong: A broker’s preference does not establish that the target has the correct ownership.

    • B

      Option B. An account of A, B and C in the same order, subject to the required checks — Correct answer

    • C

      Option C. An account in C’s sole name, because C was the holder who submitted the form

      Why it is wrong: One holder cannot receive everyone’s securities through an ordinary same-holder closure route.

    • D

      Option D. An account of the same three holders in B, A and C order, with no further process

      Why it is wrong: Reordering holders is not the same as the stated matching destination.

    Answer: B. The standard shifting/closure route requires the destination holders and their order to match. This shows that the transfer is a movement of the same ownership relationship rather than an undisclosed change in ownership. A different holder pattern needs the appropriate separate process. It is not cured merely by calling the request consolidation. Remember: For closure-cum-transfer, match holder identity and order as well as account number.

    Hint, shown before you answer in practice mode: Common mistake: Checking only that familiar names appear somewhere in the target account.

    VI-044mediumapplication

    Study this unit

15. Q15Why is a target account’s Client Master Report useful in a closure-and-shift request?

    • A

      Option A. It proves the target securities will rise in price

      Why it is wrong: It is an account-data document, not an investment forecast.

    • B

      Option B. It converts pledged securities into free securities automatically

      Why it is wrong: Pledges and freezes must be resolved under their own procedures.

    • C

      Option C. It substitutes for the existing holders’ authority to close

      Why it is wrong: The source-account closure instruction is still required.

    • D

      Option D. It helps verify the destination account identifier and holder details — Correct answer

    Answer: D. The Client Master Report supplies authenticated account-identification and holder information for the proposed destination. It supports checking that securities will move to the intended account. It does not replace the source account holders’ valid closure instruction, remove encumbrances or promise a market outcome. Remember: Destination verification and source authorisation are separate requirements.

    Hint, shown before you answer in practice mode: Common mistake: Treating one supporting document as a substitute for every other closure control.

    VI-045mediumapplication

    Study this unit

16. Q16A client declines to execute a Demat Debit and Pledge Instruction (DDPI) and offers to authorise deliveries through valid DIS/eDIS. Which response is consistent with the SEBI framework?

    • A

      Option A. The DP may sign DDPI on the client’s behalf to avoid delay

      Why it is wrong: The DP cannot manufacture the client’s consent by signing for the client.

    • B

      Option B. DDPI is voluntary. The permitted DIS/eDIS route remains available — Correct answer

    • C

      Option C. DDPI must be signed by every client regardless of preference

      Why it is wrong: Mandatory imposition conflicts with the voluntary-consent requirement.

    • D

      Option D. Declining DDPI automatically transfers the shares to the broker

      Why it is wrong: Refusal to grant an authority does not transfer ownership.

    Answer: B. SEBI identifies DDPI as a voluntary document requiring explicit client consent and recognises physical or electronic delivery instructions as alternatives. The client must still meet settlement obligations through a valid process. Voluntary does not mean that delivery itself is optional. It means that this particular authorisation need not be imposed. Remember: An optional standing authority and the underlying settlement obligation are different things.

    Hint, shown before you answer in practice mode: Common mistake: Equating refusal of DDPI with refusal or inability to settle a sale.

    VI-046mediumapplication

    Study this unit

17. Q17An investor’s residential status changes in a way relevant to the demat account category. What should the investor do?

    • A

      Option A. Move the account automatically into the name of a resident relative

      Why it is wrong: A relative’s account is not a substitute for correct classification of the investor.

    • B

      Option B. Tell the DP and complete the required status and document changes — Correct answer

    • C

      Option C. Tell only the company whose shares make up the largest holding

      Why it is wrong: Informing one issuer does not update the DP’s account classification.

    • D

      Option D. Keep the old status for good, because the PAN has not changed

      Why it is wrong: PAN continuity does not eliminate changes in residence-related requirements.

    Answer: B. An unchanged PAN does not mean that all regulatory and account attributes remain unchanged. The DP must receive the relevant status information and apply the appropriate documentation and account treatment. The specific repatriation and investment rules depend on the investor’s circumstances, so they should not be inferred solely from an identifier. Remember: Identity and regulatory account status are related but distinct data.

    Hint, shown before you answer in practice mode: Common mistake: Using a permanent identifier as a reason never to update customer classification.

    VI-047mediumapplication

    Study this unit

18. Q18An applicant claims accredited-investor status but has not completed the applicable accreditation process. Which account-servicing approach is appropriate?

    • A

      Option A. Accept the claim as soon as the applicant quotes a large overall portfolio value

      Why it is wrong: A claimed portfolio value is not by itself the prescribed accreditation evidence.

    • B

      Option B. Accept the client’s broker UCC as if it were an accreditation certificate

      Why it is wrong: A UCC identifies a trading relationship, not an accreditation decision.

    • C

      Option C. Verify the required accreditation proof. A claim of wealth is not accreditation — Correct answer

    • D

      Option D. Treat every demat holder as accredited by default until proved otherwise

      Why it is wrong: Ordinary demat account opening does not automatically confer accredited status.

    Answer: C. Accreditation is a formal status under the applicable framework, not a label that follows automatically from a customer’s assertion of wealth. Required evidence and verification must be completed before special treatment is applied. An ordinary demat account, trading identifier or self-reported portfolio value is not, by itself, proof of completed accreditation. Remember: Eligibility indicators are not the same as completed accreditation.

    Hint, shown before you answer in practice mode: Common mistake: Applying a special-investor treatment based only on a verbal claim.

    VI-048mediumapplication

    Study this unit

Functions of Depository Participant – Account Operations

14 questions on Functions of Depository Participant – Account Operations. Its quiz opens on that unit.