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NISM Series VI · Unit 11 of 12 · about 10% of the paper

Functions of DP: debt and government securities: NISM Series VI notes and practice questions

Holding and trading debt securities and government securities in electronic form.

Practise this unit freeAll of NISM Series VI

What to know in Unit 11

Key terms, examples and exam traps

Debt securities

Debt securities such as debentures and bonds are instruments by which an issuer borrows and pays interest, and can be held in demat form.

Example. An investor holds a corporate bond in her demat account.

Exam trap. This statement is false: Debt securities represent ownership in the issuer.

Government securities

Government securities (G-secs) are debt instruments issued by the central or state governments, and they carry the lowest credit risk.

Example. A dated government security pays a fixed coupon every half-year.

Exam trap. This statement is false: Government securities are issued by private companies.

Treasury bills

Treasury bills are short-term government securities issued at a discount and redeemed at face value, with maturities of 91, 182 and 364 days.

Example. An investor buys a 91-day bill below face value and receives face value on maturity.

Exam trap. This statement is false: Treasury bills pay a coupon every six months.

SGL account

A Subsidiary General Ledger (SGL) account with the RBI holds government securities in electronic form for eligible institutions.

Example. A bank holds its government securities in an SGL account.

Exam trap. This statement is false: An SGL account is held by retail investors with a DP.

Constituent SGL

A Constituent SGL (CSGL) account lets a constituent hold government securities through a bank or institution that has an SGL account.

Example. A small institution holds government securities through its bank's SGL facility.

Exam trap. This statement is false: A CSGL account is the same as a demat account with CDSL.

Retail access to G-secs

Retail investors can invest in government securities through demat accounts with a DP or through the RBI Retail Direct facility.

Example. A retail investor buys a T-bill online.

Exam trap. This statement is false: Retail investors are barred from holding government securities.

Commercial paper and debt in demat

Money market instruments such as commercial paper are issued in dematerialised form.

Example. A company's commercial paper is credited to the holder's demat account.

Exam trap. This statement is false: Commercial paper may be issued only in paper form.

Coupon and maturity

A debt security pays periodic interest, the coupon, and returns the face value on maturity, handled as a corporate action by the depository.

Example. On maturity the redemption proceeds are paid to the holder.

Exam trap. This statement is false: A debt security never repays the principal.

Settlement of debt trades

Debt trades are settled through clearing corporations, with securities moved between demat accounts on a delivery versus payment basis.

Example. Securities and cash change hands together on settlement.

Exam trap. This statement is false: Debt trades are settled by physical delivery.

6 practice questions

Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.

Q1. Which term is described here? Retail investors can invest in government securities through demat accounts with a DP or through the RBI Retail Direct facility.

  1. Retail access to G-secs
  2. Physical transfer restriction
  3. Foreign portfolio investor
  4. Account opening form and agreement

Q2. Which statement best describes “Treasury bills”?

  1. The DP marks the certificates 'Surrendered for dematerialisation' and sends them with the request to the issuer or registrar.
  2. Treasury bills are short-term government securities issued at a discount and redeemed at face value, with maturities of 91, 182 and 364 days.
  3. A pledge is the delivery of securities as security for a loan, with the pledged securities blocked in the borrower's account.
  4. SEBI does not permit the transfer of listed securities in physical form, other than for transmission and transposition, so securities must be dematerialised before transfer.

Q3. Which statement best describes “SGL account”?

  1. A Subsidiary General Ledger (SGL) account with the RBI holds government securities in electronic form for eligible institutions.
  2. Securities include shares, debentures, government securities, units of mutual funds and similar instruments that can be issued and traded.
  3. A DP sends a statement of transactions at least monthly when there are transactions, and a statement of holdings at least quarterly otherwise.
  4. Treasury bills are short-term government securities issued at a discount and redeemed at face value, with maturities of 91, 182 and 364 days.

Q4. Which statement best describes “Settlement of debt trades”?

  1. For a BSDA, the annual maintenance charge is nil for holdings up to ₹4 lakh and up to ₹100 plus GST for holdings above ₹4 lakh and up to ₹10 lakh.
  2. An investor can hold more than one demat account, with the same or different DPs, and the first holder in a joint account is the primary holder.
  3. Debt trades are settled through clearing corporations, with securities moved between demat accounts on a delivery versus payment basis.
  4. An initial public offer (IPO) is the first public offer of shares by an unlisted company, and its securities are issued in dematerialised form.

Q5. Which term is described here? A debt security pays periodic interest, the coupon, and returns the face value on maturity, handled as a corporate action by the depository.

  1. Retail access to G-secs
  2. Number of nominees
  3. Coupon and maturity
  4. Pledgor and pledgee

Q6. Which term is described here? Government securities (G-secs) are debt instruments issued by the central or state governments, and they carry the lowest credit risk.

  1. Off-market transfer
  2. Pledgor and pledgee
  3. Registered owner
  4. Government securities
See the answers in the free mock

Frequently asked questions

How much of NISM Series VI comes from Unit 11?

Unit 11 (Functions of DP: debt and government securities) usually carries about 10% of the questions. The whole exam has 100 questions and the pass mark is 60%.

What should I study in NISM Series VI Unit 11?

Government securities. Treasury bills. Debt in demat. Retail Direct.

Are these NISM Series VI practice questions free?

Yes. Take the full free mocks to see the correct answer and the reason for every question.

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← Unit 10Functions of DP: public issuesUnit 12 →Additional services: FPI and basic services demat account

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