Functions of Depository Participant – Transmission and Nomination

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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 Opening18
• Functions of Depository Participant – Account Operations14
• 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 14 questions on Functions of Depository Participant – Transmission and Nomination, with answers

1. Q1Securities move to an entitled successor after the sole holder dies, following the required documentary process. What is this process called?

   • A

     Option A. Transmission — Correct answer

   • B

     Option B. Dematerialisation

     Why it is wrong: Dematerialisation changes the form of the holding rather than its succession entitlement.

   • C

     Option C. Ordinary off-market transfer on a living holder’s instruction

     Why it is wrong: The stated event follows death and the required succession process, not a normal living-holder sale instruction.

   • D

     Option D. Transposition

     Why it is wrong: Transposition changes the order of the same joint holders, not succession after death.

   Answer: A. Transmission records a change arising from death or another recognised operation of law rather than a living holder’s ordinary sale instruction. The DP verifies the entitlement and prescribed documents before processing. Dematerialisation changes holding form, while a stock split changes the security’s denomination and quantity. Remember: Distinguish a legal succession event from a voluntary transfer.

   Hint, shown before you answer in practice mode: Common mistake: Calling every demat debit and credit an off-market sale.

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2. Q2A sole demat holder dies leaving a valid recorded nominee. What should the nominee ordinarily submit to initiate the DP’s transmission process?

   • A

     Option A. Only a new account-opening form, with no proof of the holder’s death

     Why it is wrong: Opening an account alone does not prove the event and entitlement needed for transmission.

   • B

     Option B. Only a broker’s contract note showing the shares were bought many years ago

     Why it is wrong: A historical trade record is not the prescribed transmission application.

   • C

     Option C. The prescribed transmission request, with proof of death and of identity — Correct answer

   • D

     Option D. Only the deceased holder’s last transaction statement from the DP

     Why it is wrong: A statement supports the holding but does not by itself establish the death and claimant documentation.

   Answer: C. The nominee uses the prescribed succession-related process with the relevant proof of death, identity and account details. A recorded nomination simplifies identifying the person for the depository transmission route, but it does not authorise forged instructions or dispense with verification. This operational question does not determine competing inheritance claims under succession law. Remember: Use the correct legal-event procedure rather than manufacturing a normal transfer.

   Hint, shown before you answer in practice mode: Common mistake: Assuming nomination eliminates every documentary check.

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3. Q3A deceased sole holder left no nominee. A relative asks the DP to transfer all holdings based only on a verbal statement of relationship. What should the DP do?

   • A

     Option A. Sell the holdings and keep the sale money with the DP indefinitely

     Why it is wrong: The DP does not acquire a general authority to liquidate and keep the estate.

   • B

     Option B. Treat the first relative who calls the DP as automatically entitled to everything

     Why it is wrong: Priority of contact is not proof of legal entitlement.

   • C

     Option C. Apply the prescribed legal-heir transmission rules before deciding the claim — Correct answer

   • D

     Option D. Refuse, because transmission is never possible without a nomination on record

     Why it is wrong: A lawful transmission route exists for cases without nomination.

   Answer: C. Absence of nomination does not make securities ownerless or permanently non-transferable. The DP must use the applicable legal-heir route and documentary requirements, which can vary with circumstances and value. A verbal relationship claim is insufficient, but it would also be wrong to say that nomination is the only possible basis for transmission. Remember: No nomination means a different verification route, not automatic forfeiture.

   Hint, shown before you answer in practice mode: Common mistake: Replacing entitlement evidence with family familiarity.

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4. Q4A and B jointly hold a demat account, with C recorded as nominee. A dies while B survives. Whose request is relevant for continuation or transmission under the joint-holder procedure?

   • A

     Option A. C immediately, because nomination overrides any surviving joint holder

     Why it is wrong: The nominee does not displace a surviving holder on the first death.

   • B

     Option B. The nominee and survivor must each receive exactly half automatically

     Why it is wrong: No automatic half-and-half allocation follows from the facts.

   • C

     Option C. B, the surviving joint holder — Correct answer

   • D

     Option D. A’s legal heir alone, without considering the surviving joint holding

     Why it is wrong: The joint-holder procedure must first recognise the survivor and applicable rights.

   Answer: C. Nomination in a joint account is not a mechanism to displace a surviving joint holder on the first death. The survivor follows the prescribed process, supported by death and other required documents. The nominee’s operational role arises on the death of all joint holders, subject to the applicable framework. Remember: Check whether any joint holder survives before invoking the nominee route.

   Hint, shown before you answer in practice mode: Common mistake: Applying sole-holder nomination logic to the first death in a joint account.

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5. Q5After one joint CDSL holder dies, the surviving holders complete the required documents. Must they always open a new account solely because of the death?

   • A

     Option A. No documents at all are required if the survivors simply keep using the same account

     Why it is wrong: The continuation option does not remove the required verification.

   • B

     Option B. The deceased holder’s name must remain permanently in all future instructions

     Why it is wrong: Records and future authority must reflect the change in holders.

   • C

     Option C. Yes. Continuing the existing account is prohibited in every case after a holder’s death

     Why it is wrong: This overlooks the continuation option in the current instructions.

   • D

     Option D. No. They can now keep the same account after the deceased holder’s name is deleted — Correct answer

   Answer: D. The current CDSL instructions allow survivors to continue the same account after removal of the deceased holder’s name, or to use the prescribed new-account route. This is not permission to ignore death verification or updated records. Older material that presents a fresh account as the only possible route should not be applied without checking the revised instructions. Remember: Current survivor procedures may permit continuation. Verify the available route rather than relying on old forms.

   Hint, shown before you answer in practice mode: Common mistake: Treating the old fresh-account-only approach as permanent.

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6. Q6The Karta of an HUF dies. Which approach correctly recognises the nature of the demat holding?

   • A

     Option A. Require a new PAN for the HUF just because a new Karta is taking over

     Why it is wrong: A representative change does not by itself make the continuing HUF a new entity.

   • B

     Option B. Follow the prescribed HUF process to record the new Karta and their authority — Correct answer

   • C

     Option C. Transmit the whole HUF account as part of the Karta’s own personal estate on death

     Why it is wrong: The HUF entity is distinct from the Karta in an individual capacity.

   • D

     Option D. Treat the Karta’s death as an automatic partition among all the HUF’s coparceners

     Why it is wrong: The current procedure does not deem an automatic partition merely on the Karta’s death.

   Answer: B. An HUF account represents the family entity’s holding, not automatically the Karta’s individual property. Death of the Karta requires the applicable documentation and recognition of the succeeding representative. The DP must not substitute the sole-individual transmission route merely because a natural person signed earlier instructions. Remember: Identify the account’s legal holder before selecting a transmission procedure.

   Hint, shown before you answer in practice mode: Common mistake: Confusing an authorised representative with the owner in an individual capacity.

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7. Q7A deceased holder’s account contains free shares and shares under an outstanding pledge. What must the DP recognise when processing transmission?

   • A

     Option A. The pledgee automatically becomes the owner of the free shares in the account as well

     Why it is wrong: The pledge does not automatically extend to unrelated free holdings.

   • B

     Option B. The nominee may simply erase the pledge by giving the DP a normal debit instruction

     Why it is wrong: An ordinary debit cannot override an existing pledge.

   • C

     Option C. Death alone does not end the pledge. It must be handled under the proper procedure — Correct answer

   • D

     Option D. Every pledged share becomes free of the pledge immediately on the holder’s death

     Why it is wrong: Death alone does not cancel the lender’s recorded security interest.

   Answer: C. Succession and encumbrance are separate issues. A claimant’s entitlement does not automatically cancel a valid pledge, earmarking or outstanding settlement obligation. The current instructions require relevant encumbrances to be resolved before the affected securities can be transferred through the transmission route. Unencumbered holdings should not be treated as though they all belong to the pledgee. Remember: Check both entitlement and security-level restrictions.

   Hint, shown before you answer in practice mode: Common mistake: Assuming a valid transmission claim makes all holdings freely transferable.

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8. Q8Under SEBI’s modified nomination norms implemented from 1 September 2026, how many nominees may an investor provide for a demat account?

   • A

     Option A. Only 1

     Why it is wrong: The current framework allows more than a single nominee.

   • B

     Option B. Up to 10

     Why it is wrong: Ten reflects an earlier framework rather than the modified current limit.

   • C

     Option C. Up to 3 — Correct answer

   • D

     Option D. Up to 5

     Why it is wrong: Five is not the limit in the applicable circular.

   Answer: C. The May 2026 circular, implemented from 1 September 2026, specifies up to three nominees. The effective date matters because earlier nomination circulars used a different framework. This question is dated to the current rule rather than to an older workbook or a superseded proposal. Remember: For changing nomination rules, retain both the applicable limit and its effective date.

   Hint, shown before you answer in practice mode: Common mistake: Using a superseded nominee limit without checking implementation.

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9. Q9An individual opens a new sole-holder demat account after 1 September 2026 and does not wish to nominate anyone. Which action satisfies the modified choice requirement?

   • A

     Option A. Leave the nomination section blank with no declaration

     Why it is wrong: A blank section does not establish the required explicit opt-out.

   • B

     Option B. Obtain a broker’s verbal assurance instead of recording the choice

     Why it is wrong: A verbal assurance does not replace the investor’s recorded declaration.

   • C

     Option C. Nominate the DP by default

     Why it is wrong: The DP is not a compulsory default nominee.

   • D

     Option D. Submit the prescribed opt-out declaration — Correct answer

   Answer: D. The modified framework requires nomination for a newly opened single account unless the investor submits the prescribed opt-out declaration. It preserves an explicit choice, rather than treating silence as an opt-out. The DP should record the choice using the prescribed physical or electronic process. Remember: An explicit opt-out is different from failing to provide information.

   Hint, shown before you answer in practice mode: Common mistake: Assuming “nomination optional” always means the field may simply be ignored.

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10. Q10A jointly held account has a mode of operation that permits one holder to give certain instructions. Under the current nomination circular, who must consent to adding or changing a nominee?

    • A

      Option A. Only the proposed nominee

      Why it is wrong: The decision belongs to the holders, not solely to the beneficiary being nominated.

    • B

      Option B. Any one holder permitted to operate the account

      Why it is wrong: The circular creates a specific all-holder requirement notwithstanding operating mode.

    • C

      Option C. All joint holders — Correct answer

    • D

      Option D. Only the first holder

      Why it is wrong: First-holder status does not remove the other holders’ nomination-consent requirement.

    Answer: C. SEBI expressly requires consent of all joint holders for providing or changing nomination, regardless of the mode of account operation. A general operating mandate should therefore not be extended automatically to nomination changes. The proposed nominee’s agreement cannot replace the holders’ required consent. Remember: Specific nomination consent rules override assumptions drawn from routine operating mandates.

    Hint, shown before you answer in practice mode: Common mistake: Treating nomination as just another single-signature account instruction.

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11. Q11A demat holder nominates a minor under the modified 2026 form. Besides the nominee’s name and relationship, which information is mandatory because the nominee is a minor?

    • A

      Option A. A mandatory employer certificate for the investor

      Why it is wrong: Employment certification is not the minor-nomination requirement tested.

    • B

      Option B. The minor nominee’s date of birth — Correct answer

    • C

      Option C. A mandatory percentage for every nominee

      Why it is wrong: Percentage allocation is optional in the modified form. A default applies if omitted.

    • D

      Option D. A mandatory bank account in the minor nominee’s own name

      Why it is wrong: This is not the additional mandatory minor detail specified in the circular.

    Answer: B. The circular identifies name, relationship and, for a minor nominee, date of birth as mandatory information. Some other fields are optional under the prescribed format. The DP should distinguish the mandatory data needed to establish the nominee’s status from extra information that may be supplied voluntarily. Remember: Mandatory and optional nominee fields are not interchangeable.

    Hint, shown before you answer in practice mode: Common mistake: Rejecting a form for an optional field while overlooking a required minor-status detail.

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12. Q12A physical nomination form is executed with the investor’s thumb impression rather than a wet signature. What witness requirement applies under the modified 2026 norms?

    • A

      Option A. No witnesses at all, exactly the same as for an ordinary wet signature

      Why it is wrong: The no-witness rule for wet signatures does not extend to thumb impressions.

    • B

      Option B. Two witnesses, with their required identity details given in the form — Correct answer

    • C

      Option C. Four witnesses, all appointed by the stock exchange for the purpose

      Why it is wrong: Four exchange-appointed witnesses are not required by the circular.

    • D

      Option D. Only the proposed nominee, who must sign the form as its sole witness

      Why it is wrong: A nominee’s signature alone is not the prescribed two-witness requirement.

    Answer: B. The modified circular distinguishes a wet-signed form, for which witnesses are not required, from a thumb-impression form, which requires two witnesses with their names and addresses. The authentication method must therefore be checked before deciding that a form is complete. This question does not impose the thumb-impression requirement on ordinary signatures. Remember: Apply the witness rule to the actual method of execution.

    Hint, shown before you answer in practice mode: Common mistake: Carrying the no-witness rule from wet signatures across to thumb impressions.

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13. Q13A valid nomination lists three nominees in order but specifies no allocation percentages. Exactly 100 indivisible shares of one ISIN must be allocated after transmission. Under the current equal-allocation and odd-lot rule, what allocation applies?

    • A

      Option A. 33, 33 and 33 shares, with one share cancelled

      Why it is wrong: The remaining share is allocated, not destroyed.

    • B

      Option B. 100, 0 and 0 shares, respectively

      Why it is wrong: Omission of percentages does not give everything to the first nominee.

    • C

      Option C. 34, 33 and 33 shares, respectively — Correct answer

    • D

      Option D. 33, 34 and 33 shares, respectively

      Why it is wrong: The remainder goes to the first nominee, not the second.

    Answer: C. Where percentages are not specified, the circular provides for equal allocation. An odd lot is transferred to the first nominee. Dividing 100 by 3 gives 33 whole shares each and one remaining share. The remainder goes to the first nominee, giving 34, 33 and 33. No share is cancelled merely because equal whole-number division is impossible. Remember: Use the default equal shares, then apply the specified treatment of indivisible remainders.

    Hint, shown before you answer in practice mode: Common mistake: Dropping a rounding remainder from the transmission total.

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14. Q14A holder has already changed the nomination twice during the year. What does the current circular say about another valid change request?

    • A

      Option A. Only two changes are allowed over the account’s whole life, so this request is refused

      Why it is wrong: There is no two-change lifetime cap.

    • B

      Option B. A third change in the same year needs a trading approval from the stock exchange

      Why it is wrong: Exchange trading approval is not the nomination-change condition.

    • C

      Option C. No cap applies to changes or cancellations. Each valid request should be acknowledged — Correct answer

    • D

      Option D. Only one change per financial year is permitted, so no more this year

      Why it is wrong: An annual one-change limit is not prescribed.

    Answer: C. The circular does not limit the number of nomination changes or cancellations and requires acknowledgement of each instance. The change must still be authenticated and meet applicable consent requirements. Unlimited frequency does not mean that an unsigned or unauthorised request must be processed. Remember: No frequency cap does not remove authentication and recordkeeping duties.

    Hint, shown before you answer in practice mode: Common mistake: Inventing a limit because nomination has already been modified several times.

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Functions of Depository Participant – Dematerialisation

18 questions on Functions of Depository Participant – Dematerialisation. Its quiz opens on that unit.