Introduction to the Indian Capital Market
8 questions. Each answer is explained.
Question 1 of 8Practice · Series VI — Depository Operations
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Learn these topics
More units in NISM Series VI
- Introduction to Depository12
- Depository and its Business Partners10
- Functions of Depository Participant – Account Opening18
- 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
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 marks |
| Negative marking | 25% · 0.25 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series VI Depository Operations
Exam rules read on NISM's site on 3 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 3 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 8 questions on Introduction to the Indian Capital Market, with answers
Q1A company issues fresh equity shares to investors and receives the subscription money. This transaction belongs to the:
Option A. Secondary market
Why it is wrong: Secondary trading exchanges existing holdings between investors. It does not describe this fresh issue.
Option B. Primary market — Correct answer
Option C. Depository transfer market
Why it is wrong: A depository records holdings and movements. It is not a separate capital-raising market.
Option D. Securities lending market
Why it is wrong: Securities lending temporarily transfers securities under a lending arrangement, not a fresh issue.
Answer: B. The defining feature is that the issuer creates and allots new securities and receives the proceeds. That is a primary-market transaction. Subsequent trading of existing shares between investors belongs to the secondary market. A demat credit records the resulting holding, but it does not change which market the capital-raising transaction belongs to. Remember: Classify a transaction by whether new securities are issued or existing holdings are traded.
Hint, shown before you answer in practice mode: Common mistake: Treating every transaction that creates a demat credit as a secondary-market purchase.
VI-001easyapplication
Q2Rina buys listed shares from another investor through an exchange. Who normally receives the sale consideration, ignoring fees and settlement intermediaries?
Option A. The depository as the beneficial owner
Why it is wrong: A depository facilitates electronic holdings. It does not own the seller’s proceeds.
Option B. The registrar as subscription proceeds
Why it is wrong: An RTA may service the security but is not the seller in this transaction.
Option C. The issuing company as fresh equity capital
Why it is wrong: The company receives fresh capital in a primary issue, not this investor-to-investor sale.
Option D. The selling investor — Correct answer
Answer: D. This is a secondary-market sale of existing shares. The buyer acquires the holding from the seller, and the economic consideration belongs to that seller. The issuer does not receive new capital merely because its shares change hands. Clearing and depository arrangements facilitate completion of the trade rather than becoming its economic beneficiaries. Remember: Secondary-market liquidity lets investors exchange ownership without a new issue by the company.
Hint, shown before you answer in practice mode: Common mistake: Confusing the issuer of a security with the seller in every subsequent transaction.
VI-002easyapplication
Q3Which pairing correctly distinguishes an ordinary equity shareholder from a holder of a plain non-convertible debenture?
Option A. Equity shareholder: ownership interest. Debenture holder: debt claim — Correct answer
Option B. Equity shareholder: fixed deposit. Debenture holder: ownership interest
Why it is wrong: An ordinary share is not a bank deposit, and a plain debenture is not ordinary equity.
Option C. Both are necessarily owners with identical voting rights
Why it is wrong: Debt and equity do not automatically carry identical governance rights.
Option D. Both have an identical unconditional dividend entitlement
Why it is wrong: A shareholder has no unconditional fixed dividend merely by holding ordinary equity.
Answer: A. An ordinary share represents an ownership interest in the company. A plain non-convertible debenture represents borrowing and a contractual debt claim. Holding either instrument through a depository changes its form of recordkeeping, not its legal and economic character. Interest and repayment terms of debt should not be confused with discretionary equity dividends. Remember: Demat is the holding form. Debt or equity describes the underlying claim.
Hint, shown before you answer in practice mode: Common mistake: Assuming securities in one demat account all confer the same rights.
VI-003easyconceptual
Q4Which body is the principal regulator of depositories and depository participants in India’s securities market?
Option A. Ministry of Corporate Affairs
Why it is wrong: MCA handles important company law functions. It does not replace SEBI’s supervision of depositories.
Option B. Securities and Exchange Board of India — Correct answer
Option C. Reserve Bank of India
Why it is wrong: RBI regulates other activities in the financial sector. It is not the main regulator of depositories or DP services.
Option D. Pension Fund Regulatory and Development Authority
Why it is wrong: PFRDA regulates the pension sector, not DP services.
Answer: B. SEBI is in charge of the rules for the securities market. This covers depositories and registered depository participants (DPs). RBI has key duties in banking and monetary matters. It also has duties for government securities. But these duties do not make it the main regulator of DP services. A DP’s registration and compliance come under SEBI and the depository framework. Remember: Distinguish the securities-market regulator from banking and insurance regulators.
Hint, shown before you answer in practice mode: Common mistake: Naming the regulator of the DP’s parent bank instead of the regulator of its DP activity.
VI-004easyconceptual
Q5Which statute specifically establishes the framework for holding and transferring securities through depositories?
Option A. Companies Act, 2013
Why it is wrong: Company law matters for issuers. But it is the Depositories Act that sets up the depository relationship.
Option B. Reserve Bank of India Act, 1934
Why it is wrong: The RBI Act does not set up the legal framework for demat holdings.
Option C. Securities Contracts (Regulation) Act, 1956
Why it is wrong: SCRA deals with securities contracts and markets. It does not cover the depository ownership framework asked for here.
Option D. Depositories Act, 1996 — Correct answer
Answer: D. The Depositories Act deals with the depository framework. It covers electronic ownership records and beneficial owners. It also covers participants, fungibility and related rights. Other Acts may affect an entity or a transaction. But they do not replace the law that governs the depository relationship tested here. Remember: Link each regulatory topic to its specific governing legislation.
Hint, shown before you answer in practice mode: Common mistake: Assuming a bank-operated DP is governed only by banking legislation.
VI-005easyconceptual
Q6A customer needs to place an exchange order, hold the resulting shares electronically and pay for them. Which combination matches these three functions?
Option A. Demat account for all three functions without any other arrangement
Why it is wrong: A demat account is not itself a cash bank account or an exchange trading licence.
Option B. Demat account, bank account and trading account, respectively
Why it is wrong: The first account in this sequence does not place exchange orders, and the other two functions are also reversed.
Option C. Bank account, trading account and demat account, respectively
Why it is wrong: A bank account does not replace exchange order execution or securities custody.
Option D. Trading account, demat account and bank account, respectively — Correct answer
Answer: D. The trading relationship provides order execution through a broker. The demat relationship records securities ownership through a DP. The bank account supports money movement. Providers may integrate the customer experience, but integration does not erase the separate functions or the need for valid instructions for each type of asset. Remember: An integrated platform still contains distinct trading, securities-holding and cash functions.
Hint, shown before you answer in practice mode: Common mistake: Treating the demat login as proof that every transaction is a DP service.
VI-006mediumapplication
Q7A valid share purchase has been executed, but the seller fails to deliver the required securities on settlement. Which risk is illustrated most directly?
Option A. Liquidity risk from inability to find a buyer before execution
Why it is wrong: A trade has already been executed. The difficulty is completing it.
Option B. Market-price risk from a subsequent price decline
Why it is wrong: The stated failure concerns delivery, not a change in price.
Option C. Dilution risk from a new share issue
Why it is wrong: No new issue or change in relative share ownership is described.
Option D. Settlement risk — Correct answer
Answer: D. The problem concerns completion of an already executed trade: the promised securities are not delivered. That is settlement risk. Changes in market price or interest rates may create other exposures, but they do not describe this operational failure. Depository and clearing processes reduce such risks. They do not make a failed obligation conceptually impossible. Remember: Execution of an order and completion of settlement are separate stages.
Hint, shown before you answer in practice mode: Common mistake: Assuming a trade confirmation proves that securities have already arrived.
VI-007mediumapplication
Q8A DP says its customer agreement permits a practice that a binding SEBI direction prohibits. Which position is correct?
Option A. The customer agreement cannot override the binding regulatory requirement — Correct answer
Option B. The practice becomes permissible if the DP discloses an additional charge
Why it is wrong: Pricing disclosure does not make a prohibited operation lawful.
Option C. The signed agreement always prevails over a SEBI direction
Why it is wrong: Private agreement cannot displace a binding regulatory prohibition.
Option D. The prohibition applies only to customers who did not sign the agreement
Why it is wrong: Signing does not remove the customer or DP from the regulatory framework.
Answer: A. Contractual terms operate within the applicable law and regulatory framework. A customer’s signature cannot authorise a DP to disregard a binding direction. Disclosure of a charge also does not cure a prohibited practice. The operational task is to apply the required control and revise conflicting contractual or procedural wording. Remember: Regulatory obligations set boundaries within which customer contracts operate.
Hint, shown before you answer in practice mode: Common mistake: Treating consent as a blanket waiver of statutory investor protection.
VI-008mediumapplication
Introduction to the Indian Capital Market: common questions
How many practice questions are there on Introduction to the Indian Capital Market?
8 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 13 practice topics for NISM Series VI, which has 150 questions in total.
Are these real NISM Series VI questions on Introduction to the Indian Capital Market?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series VI?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1-mark question that is 0.25 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Introduction to Depository
12 questions on Introduction to Depository. Its quiz opens on that unit.
Open Introduction to Depository