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Series VI · Practice Set 1

NISM Series VI: Depository Operations Certification — Practice Set 1 Practice Questions

Original practice set for NISM Series VI: Depository Operations Certification. Every question below shows the correct answer and a full explanation, so you can read through this set as a study page or attempt it as a timed mock test.

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Practice questions

All 40 questions in Practice Set 1

Read each question, think through your answer, then expand it to check the correct option and explanation.

Depository System

Q1. A depository in the securities market is an organisation that:

  1. A. Trades securities on behalf of investors
  2. B. Holds securities in electronic form and facilitates their transfer
  3. C. Manages mutual fund portfolios
  4. D. Issues new shares to the public
Show correct answer & explanation

Correct answer: B. Holds securities in electronic form and facilitates their transfer

A depository holds securities (shares, bonds, debentures, government securities) in electronic/dematerialised form and facilitates their transfer and settlement. India has two depositories: NSDL and CDSL.
Depository System

Q2. The two depositories in India are:

  1. A. NSE and BSE
  2. B. NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited)
  3. C. SEBI and RBI
  4. D. AMFI and CAMS
Show correct answer & explanation

Correct answer: B. NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited)

India has two SEBI-registered depositories: NSDL (National Securities Depository Limited) promoted by NSE, and CDSL (Central Depository Services Limited) promoted by BSE. Both are regulated by SEBI.
Depository System

Q3. A Depository Participant (DP) is:

  1. A. A competitor of NSDL/CDSL
  2. B. An agent of the depository through whom investors open and maintain Demat accounts
  3. C. A stock exchange
  4. D. A clearing corporation
Show correct answer & explanation

Correct answer: B. An agent of the depository through whom investors open and maintain Demat accounts

A Depository Participant (DP) is an entity registered with and acting as an agent of the depository (NSDL or CDSL). Banks, stockbrokers, and NBFCs can be DPs through whom investors open and operate their Demat accounts.
Dematerialisation

Q4. Dematerialisation means:

  1. A. Converting electronic securities to physical form
  2. B. Converting physical share certificates into electronic form held in a Demat account
  3. C. Destroying old certificates
  4. D. Splitting shares into smaller denomination
Show correct answer & explanation

Correct answer: B. Converting physical share certificates into electronic form held in a Demat account

Dematerialisation (Demat) is the process of converting physical share certificates and other securities into electronic form, which is held in the investor's Demat account. It eliminates risks of loss, forgery, or theft of physical certificates.
Dematerialisation

Q5. Rematerialisation is the process of:

  1. A. Opening a new Demat account
  2. B. Converting electronic holdings back into physical share certificates
  3. C. Buying more shares
  4. D. Pledging shares as collateral
Show correct answer & explanation

Correct answer: B. Converting electronic holdings back into physical share certificates

Rematerialisation (Remat) is the reverse of dematerialisation — converting electronic securities held in a Demat account back into physical share certificates. The investor submits a Remat Request Form (RRF) to the DP.
Demat Account Operations

Q6. A Beneficiary Owner (BO) account is another name for:

  1. A. A broker's trading account
  2. B. An investor's Demat account — the investor is the beneficial owner of securities held in it
  3. C. A clearing member account
  4. D. The depository's own account
Show correct answer & explanation

Correct answer: B. An investor's Demat account — the investor is the beneficial owner of securities held in it

A Beneficiary Owner (BO) account is the Demat account opened by an individual investor or institution. The investor is called the beneficiary owner — they are the true owner of the securities held electronically in the account.
Demat Account Operations

Q7. ISINS (International Securities Identification Numbers) are used to:

  1. A. Identify investors
  2. B. Uniquely identify each security (share, bond, ETF) globally with a 12-character alphanumeric code
  3. C. Set share prices
  4. D. Regulate trading volumes
Show correct answer & explanation

Correct answer: B. Uniquely identify each security (share, bond, ETF) globally with a 12-character alphanumeric code

An ISIN is a 12-character alphanumeric code that uniquely identifies a security globally. In India, ISINs are assigned by NSDL. Every listed security has a unique ISIN used for electronic trading and settlement.
Settlement

Q8. Rolling Settlement means:

  1. A. Settlement done at the end of each month
  2. B. Each trading day's transactions are settled after a fixed number of days — e.g., T+1 means settlement 1 business day after trade
  3. C. Settlement only for large investors
  4. D. Settlement of only futures contracts
Show correct answer & explanation

Correct answer: B. Each trading day's transactions are settled after a fixed number of days — e.g., T+1 means settlement 1 business day after trade

Rolling settlement means trades are settled on a rolling basis — each day's trades are settled after a fixed number of days. India moved to T+1 settlement where trades done on Monday are settled on Tuesday (securities and funds).
Settlement

Q9. In securities settlement, 'Pay-in' refers to:

  1. A. Investors paying for shares bought
  2. B. Delivery of shares (or funds) by sellers (or buyers) to the clearing corporation for settlement
  3. C. Clearing corporation paying out to investors
  4. D. The clearing fee paid by brokers
Show correct answer & explanation

Correct answer: B. Delivery of shares (or funds) by sellers (or buyers) to the clearing corporation for settlement

Pay-in is the process where selling investors deliver shares (securities pay-in) and buying investors deliver funds (funds pay-in) to the clearing corporation on the settlement date. After pay-in, the clearing corporation does pay-out.
Settlement

Q10. Clearing Corporation's role in securities settlement is:

  1. A. To execute trades on the exchange
  2. B. To act as central counterparty — guaranteeing settlement of all trades and managing default risk
  3. C. To set market prices
  4. D. To regulate insider trading
Show correct answer & explanation

Correct answer: B. To act as central counterparty — guaranteeing settlement of all trades and managing default risk

The Clearing Corporation (like NSE Clearing Ltd. or BSE Clearing) acts as the central counterparty for all trades, ensuring settlement by guaranteeing pay-in and pay-out. It manages default risk through margin collection and settlement guarantee funds.
Corporate Actions

Q11. In the depository system, corporate actions like dividend, bonus, and rights are processed based on:

  1. A. Physical share certificate holders only
  2. B. Beneficiary position (BENPOS) data — electronic records of who holds shares in Demat form on the record date
  3. C. Manual verification by the company
  4. D. Only shareholders who request it
Show correct answer & explanation

Correct answer: B. Beneficiary position (BENPOS) data — electronic records of who holds shares in Demat form on the record date

Corporate actions are processed based on the Beneficial Position (BENPOS) data — the electronic record of shareholders holding securities in Demat form on the record date. This data is provided by NSDL/CDSL to the company/RTA.
Corporate Actions

Q12. When bonus shares are credited to Demat accounts:

  1. A. Investor receives physical certificates
  2. B. Bonus shares are automatically credited to the investor's Demat account on the ex-date or credit date without any action required from the investor
  3. C. Investor must apply separately
  4. D. Investor receives cash instead
Show correct answer & explanation

Correct answer: B. Bonus shares are automatically credited to the investor's Demat account on the ex-date or credit date without any action required from the investor

Bonus shares are automatically credited to investors' Demat accounts on the credit date (typically one day after the ex-date) without any action required from the investor. The company/RTA provides the credit file to the depository.
Demat Account Operations

Q13. A Power of Attorney (PoA) in a Demat account context is:

  1. A. A court document for legal disputes
  2. B. An authorisation given by the Demat account holder to the stockbroker to transfer shares for sale purposes
  3. C. A mandatory SEBI requirement
  4. D. A document to transfer account ownership
Show correct answer & explanation

Correct answer: B. An authorisation given by the Demat account holder to the stockbroker to transfer shares for sale purposes

A PoA in the Demat context authorises the stockbroker to instruct the DP to transfer securities from the investor's Demat account when they sell shares. SEBI has regulated PoA usage to protect investor interests.
Depository System

Q14. The Depository Act that governs depositories in India was enacted in:

  1. A. 1988
  2. B. 1992
  3. C. 1996
  4. D. 2000
Show correct answer & explanation

Correct answer: C. 1996

The Depositories Act, 1996 provides the legal framework for depositories in India. It defines the rights and responsibilities of depositories, DPs, and beneficial owners, and provides for dematerialisation of securities.
Demat Account Operations

Q15. Minimum number of DP accounts required to hold securities in Demat form:

  1. A. Two — one with NSDL and one with CDSL
  2. B. Only one — can hold all securities in a single DP account
  3. C. Three — separate for equity, bonds, and mutual funds
  4. D. One per stock exchange
Show correct answer & explanation

Correct answer: B. Only one — can hold all securities in a single DP account

An investor needs only one Demat account to hold all types of securities (equity shares, bonds, ETFs, mutual fund units held in Demat form) regardless of the exchange they are traded on. A single account with one DP is sufficient.
Settlement

Q16. Securities Lending and Borrowing (SLB) through depositories allows:

  1. A. Banks to lend money against shares
  2. B. Investors to lend securities from their Demat account to short-sellers, earning lending fees
  3. C. DPs to borrow from investors
  4. D. AMCs to lend mutual fund units
Show correct answer & explanation

Correct answer: B. Investors to lend securities from their Demat account to short-sellers, earning lending fees

SLB (Securities Lending and Borrowing) allows investors to lend idle securities from their Demat accounts to short-sellers (who need to borrow for short positions). Lenders earn a fee, and the securities are returned after a specified period.
Demat Account Operations

Q17. Pledge of shares in a Demat account is created when:

  1. A. Shares are sold
  2. B. Shares are used as collateral for a loan — pledge is marked by the DP at the instruction of the pledgor
  3. C. Shares are transferred as gift
  4. D. Shares are converted to physical form
Show correct answer & explanation

Correct answer: B. Shares are used as collateral for a loan — pledge is marked by the DP at the instruction of the pledgor

A pledge is created when an investor uses their Demat shares as collateral for a loan. The DP marks the pledge in the system at the investor's instruction, and the pledged shares cannot be sold until the pledge is released by the lender.
Depository System

Q18. The relationship between a depository and a Depository Participant is governed by:

  1. A. An informal understanding
  2. B. A DP agreement — a detailed contract specifying rights, duties, and obligations of both parties
  3. C. SEBI's direct instructions only
  4. D. The Companies Act only
Show correct answer & explanation

Correct answer: B. A DP agreement — a detailed contract specifying rights, duties, and obligations of both parties

The relationship between a depository (NSDL/CDSL) and its Depository Participant is governed by a formal DP Agreement that specifies the rights, duties, fees, systems, and compliance obligations of both parties.
Corporate Actions

Q19. Rights entitlement in the depository system for rights issues is handled by:

  1. A. Only through physical application forms
  2. B. SEBI's online portal only
  3. C. Electronically — rights entitlements are credited to Demat accounts and can be traded or applied for digitally
  4. D. Only through the company's registrar physically
Show correct answer & explanation

Correct answer: C. Electronically — rights entitlements are credited to Demat accounts and can be traded or applied for digitally

Rights entitlements (RE) are credited to investors' Demat accounts. Investors can apply for rights shares online using ASBA (R-WAP facility), renounce their rights (sell REs on exchange), or let them lapse. Fully electronic process.
Regulations

Q20. SEBI's regulations for depositories include requirements for:

  1. A. Setting stock prices
  2. B. Maintaining net worth, insurance cover, operational standards, audit requirements, and investor grievance redressal
  3. C. Approving IPOs
  4. D. Setting clearing margins
Show correct answer & explanation

Correct answer: B. Maintaining net worth, insurance cover, operational standards, audit requirements, and investor grievance redressal

SEBI's SEBI (Depositories and Participants) Regulations, 2018 prescribe requirements for depositories including minimum net worth, insurance, data security, audit requirements, grievance redressal, and operational standards.
Demat Account Operations

Q21. Delivery Instruction Slip (DIS) is used by an investor to:

  1. A. Buy shares
  2. B. Instruct the DP to transfer specific securities from the Demat account to another account or deliver to the clearing corporation
  3. C. Open a new Demat account
  4. D. Check their Demat account balance
Show correct answer & explanation

Correct answer: B. Instruct the DP to transfer specific securities from the Demat account to another account or deliver to the clearing corporation

A Delivery Instruction Slip (DIS) is used by the Demat account holder to instruct the DP to transfer specified securities from their account to another Demat account or deliver them to the clearing corporation (for settlement).
Settlement

Q22. Auction mechanism in securities settlement is used when:

  1. A. All traders want to buy the same stock
  2. B. A seller fails to deliver securities on the settlement date — exchange procures them through auction to complete the buyer's delivery
  3. C. Prices are too high
  4. D. A new IPO is launched
Show correct answer & explanation

Correct answer: B. A seller fails to deliver securities on the settlement date — exchange procures them through auction to complete the buyer's delivery

When a seller fails to deliver securities on the settlement date, the exchange/clearing corporation conducts an auction to procure those securities from other market participants. The defaulting seller bears any price difference.
Demat Account Operations

Q23. A freeze on a Demat account means:

  1. A. The account earns interest
  2. B. Transactions (debits or credits or both) are temporarily blocked as per the account holder's or regulator's instruction
  3. C. The account is closed
  4. D. Shares are converted to physical form
Show correct answer & explanation

Correct answer: B. Transactions (debits or credits or both) are temporarily blocked as per the account holder's or regulator's instruction

A Demat account freeze blocks transactions. A Debit Freeze blocks outgoing transfers (useful to prevent unauthorized transfers). A Credit Freeze blocks incoming transfers. The account holder can request the freeze for their own protection.
Depository System

Q24. CDSL's parent company / major stakeholder is:

  1. A. NSE
  2. B. BSE (Bombay Stock Exchange)
  3. C. RBI
  4. D. SEBI
Show correct answer & explanation

Correct answer: B. BSE (Bombay Stock Exchange)

CDSL (Central Depository Services Limited) was promoted by BSE (Bombay Stock Exchange) and has BSE as a major stakeholder. NSDL was promoted by NSE. Both are independent entities now, but have these historical associations.
Settlement

Q25. Early pay-in of securities in T+1 settlement means:

  1. A. Paying before the market opens
  2. B. Investor delivers securities to clearing corporation before the settlement date — reduces MTM margin requirements
  3. C. Broker pays on behalf of investor
  4. D. SEBI pays all settlement obligations
Show correct answer & explanation

Correct answer: B. Investor delivers securities to clearing corporation before the settlement date — reduces MTM margin requirements

Early pay-in means delivering securities to the clearing corporation before the official pay-in deadline. It reduces the MTM (mark-to-market) margin the broker needs to maintain for the position, freeing up capital.
Corporate Actions

Q26. Stock split (sub-division) in the depository system results in:

  1. A. Reduction in total shares in Demat account
  2. B. Automatic credit of additional shares to Demat account — existing shares split into more shares of lower face value
  3. C. Cash credit instead of shares
  4. D. No change in the Demat account
Show correct answer & explanation

Correct answer: B. Automatic credit of additional shares to Demat account — existing shares split into more shares of lower face value

In a stock split, the additional shares are automatically credited to investors' Demat accounts by the depository based on BENPOS data. The face value reduces proportionally; for a 1:2 split, 1 share becomes 2 shares of half the face value.
Regulations

Q27. The mandatory demat format applies to:

  1. A. Only blue-chip company shares
  2. B. All securities listed on recognised stock exchanges — trading and delivery must be in demat form
  3. C. Only bonds and debentures
  4. D. Only mutual fund units
Show correct answer & explanation

Correct answer: B. All securities listed on recognised stock exchanges — trading and delivery must be in demat form

SEBI has mandated dematerialisation for all securities listed on recognised stock exchanges. Trading and settlement of listed securities can only happen in electronic (demat) form — physical delivery is not permitted for listed securities.
Demat Account Operations

Q28. A joint Demat account can be opened with:

  1. A. Unlimited number of holders
  2. B. Maximum of 3 joint holders
  3. C. Only 2 joint holders
  4. D. Not allowed — only single-holder accounts
Show correct answer & explanation

Correct answer: B. Maximum of 3 joint holders

A Demat account can be opened with up to 3 account holders (1 primary + 2 joint holders). The first holder is the primary account holder for communication and instruction purposes.
Settlement

Q29. Straight Through Processing (STP) in the depository context refers to:

  1. A. Manual verification of all trades
  2. B. Automated electronic processing of trade data from exchange to clearing to depository without manual intervention
  3. C. Physical certificate processing
  4. D. Only processing of government bond trades
Show correct answer & explanation

Correct answer: B. Automated electronic processing of trade data from exchange to clearing to depository without manual intervention

STP means trade data flows automatically and electronically from the stock exchange to the clearing corporation to the depository — without manual intervention. This reduces errors, costs, and settlement time, enabling T+1 settlement.
Depository System

Q30. A Clearing Member in the depository context is:

  1. A. A shareholder with large holdings
  2. B. A SEBI-registered entity (usually a broker) responsible for settling trades on behalf of their clients with the clearing corporation
  3. C. The clearing corporation itself
  4. D. A bank providing settlement funds
Show correct answer & explanation

Correct answer: B. A SEBI-registered entity (usually a broker) responsible for settling trades on behalf of their clients with the clearing corporation

A Clearing Member (CM) is a SEBI-registered entity (usually a stockbroker) that has clearing rights with the clearing corporation. CMs are responsible for settlement of their clients' trades — paying funds and delivering/receiving securities.
Corporate Actions

Q31. In the depository system, interim dividend is processed:

  1. A. Only by physical warrant dispatch
  2. B. Electronically via NACH/ECS — depository provides BENPOS to company; company credits dividend directly to shareholders' bank accounts
  3. C. Through physical dividend warrants only
  4. D. Only through the RTA's manual process
Show correct answer & explanation

Correct answer: B. Electronically via NACH/ECS — depository provides BENPOS to company; company credits dividend directly to shareholders' bank accounts

Dividends are now processed electronically. The company/RTA uses BENPOS data from the depository to identify shareholders and credit dividends directly to their registered bank accounts via NACH/ECS — eliminating physical dividend warrants.
Demat Account Operations

Q32. Change of address in a Demat account must be submitted to:

  1. A. SEBI directly
  2. B. The DP (Depository Participant) who maintains the Demat account
  3. C. The clearing corporation
  4. D. The stock exchange
Show correct answer & explanation

Correct answer: B. The DP (Depository Participant) who maintains the Demat account

Changes to Demat account details (address, phone, email, nominee) must be submitted to the DP who maintains the account. The DP updates the records in the depository's system. KYC compliance may require supporting documents.
Regulations

Q33. SEBI's SCORES portal can be used by investors to:

  1. A. Trade in securities
  2. B. File complaints against DPs and depositories if their grievances are unresolved
  3. C. Open Demat accounts online
  4. D. Check NAV of mutual funds
Show correct answer & explanation

Correct answer: B. File complaints against DPs and depositories if their grievances are unresolved

If an investor's complaint against a DP or depository is not resolved satisfactorily, they can escalate to SEBI through the SCORES (SEBI Complaint Redressal System) portal at scores.sebi.gov.in.
Demat Account Operations

Q34. Basic Services Demat Account (BSDA) is:

  1. A. An account for institutional investors only
  2. B. A simplified, low-cost Demat account for small investors with limited holdings and zero/minimal charges below threshold
  3. C. An account only for government bonds
  4. D. An account operated by SEBI directly
Show correct answer & explanation

Correct answer: B. A simplified, low-cost Demat account for small investors with limited holdings and zero/minimal charges below threshold

BSDA (Basic Services Demat Account) is a simplified, low-cost Demat account for small retail investors. If the holding value is below Rs. 2 lakh (or 4 lakh for certain eligible accounts), charges are nil or minimal. Only one BSDA per investor.
Settlement

Q35. 'Short delivery' in securities settlement occurs when:

  1. A. Investor buys fewer shares than intended
  2. B. Seller fails to deliver all the securities sold on the settlement date
  3. C. Buyer pays less than required
  4. D. Clearing corporation delivers fewer shares
Show correct answer & explanation

Correct answer: B. Seller fails to deliver all the securities sold on the settlement date

Short delivery occurs when a seller (through their broker) fails to deliver some or all of the securities sold on the settlement date. The clearing corporation manages this through auction mechanism and penalises the defaulting broker/seller.
Depository System

Q36. One of the key advantages of holding securities in Demat form over physical form is:

  1. A. Higher dividend income
  2. B. Elimination of risks of bad delivery, theft, loss, forgery, and delays — along with easier transfer
  3. C. Guaranteed price appreciation
  4. D. Interest income on holdings
Show correct answer & explanation

Correct answer: B. Elimination of risks of bad delivery, theft, loss, forgery, and delays — along with easier transfer

Demat holdings eliminate risks associated with physical certificates: bad delivery, theft, loss, mutilation, and forgery. Transfer is instantaneous and paperless. Corporate benefits are received automatically and without risk of losing physical warrants.
Regulations

Q37. Annual charges for a Demat account are levied by:

  1. A. SEBI
  2. B. The DP — as annual maintenance charges (AMC) — rate varies by DP
  3. C. NSDL/CDSL directly to investors
  4. D. The stock exchange
Show correct answer & explanation

Correct answer: B. The DP — as annual maintenance charges (AMC) — rate varies by DP

Annual Maintenance Charges (AMC) for a Demat account are levied by the DP (not by NSDL/CDSL directly to investors). AMC rates vary by DP and account type. SEBI has capped or waived AMC for BSDA accounts below certain holding values.
Settlement

Q38. Good-till-Cancelled (GTC) orders in trading are not the same as settlement — settlement happens:

  1. A. When the GTC order is placed
  2. B. After the GTC order is executed and matched — following the regular T+1 settlement cycle
  3. C. Only when the investor explicitly confirms
  4. D. At the end of each month
Show correct answer & explanation

Correct answer: B. After the GTC order is executed and matched — following the regular T+1 settlement cycle

Settlement happens after a GTC order is executed (matched with a counterpart). Once executed, the trade follows the normal T+1 settlement cycle — securities and funds are exchanged between buyers and sellers via the clearing corporation.
Corporate Actions

Q39. In a company merger, existing shareholders of the merging company receive:

  1. A. Cash payment only
  2. B. Shares of the resultant company at the exchange ratio specified in the merger scheme — credited to their Demat accounts
  3. C. Shares of a third company
  4. D. No compensation
Show correct answer & explanation

Correct answer: B. Shares of the resultant company at the exchange ratio specified in the merger scheme — credited to their Demat accounts

In a merger/amalgamation, shareholders of the merging company receive shares of the resultant company based on the approved swap ratio. These new shares are credited to shareholders' Demat accounts, while the old shares are extinguished.
Demat Account Operations

Q40. If an investor's DP shuts down or loses its license, their securities are:

  1. A. Lost permanently
  2. B. Safe — NSDL/CDSL holds the electronic records; investor can transfer securities to another DP
  3. C. Automatically sold by the depository
  4. D. Returned as physical certificates
Show correct answer & explanation

Correct answer: B. Safe — NSDL/CDSL holds the electronic records; investor can transfer securities to another DP

Securities held in Demat form are safe even if a DP closes down. NSDL/CDSL maintains the master record of all holdings. Investors can transfer their securities to another DP. The securities are never at risk due to DP failure.

How to use this set

Work through the questions in order without expanding the answers first, exactly as you would in the real Series VI exam. Once you have picked an option, expand the answer to confirm whether you were right and read the explanation, even for questions you answered correctly, since the reasoning behind each option is where most of the learning happens.

If you get a question wrong, note the topic tag above the question and revisit that topic in the Series VI exam page before your next attempt. When you are ready for exam-condition practice, use the timed mock test above; it shuffles these questions, applies the negative marking rule, and gives you a scored review at the end.