NISM Series VI · Unit 4 of 12 · about 12% of the paper
Functions of DP: account opening: NISM Series VI notes and practice questions
How a demat (beneficial owner) account is opened: forms, KYC, documents, types of accounts, statements and closure.
What to know in Unit 4
- Account opening process.
- KYC and PAN.
- Types of accounts.
- Statements and tariff.
Key terms, examples and exam traps
Beneficial owner account
A beneficial owner (BO) account, or demat account, holds securities in electronic form and is opened with a DP.
Example. An investor opens a demat account with a bank DP.
Exam trap. This statement is false: A demat account can be opened directly with the issuer.
Account opening form and agreement
The investor completes an account opening form and signs the agreement setting out the rights and obligations of the BO and the DP.
Example. A new client signs the account opening form and the standard rights and obligations document.
Exam trap. This statement is false: A verbal agreement is enough to open a demat account.
KYC and PAN
Opening an account requires KYC compliance, with PAN, proof of identity and proof of address, and PAN is mandatory.
Example. A client submits her PAN card and address proof with the form.
Exam trap. This statement is false: An account can be opened without PAN.
Account holder
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.
Example. A client holds one account for trading and another for long-term holding.
Exam trap. This statement is false: An investor may hold only one demat account in India.
Types of accounts
Demat accounts may be opened by individuals, joint holders, HUFs, companies, trusts, NRIs and minors through a guardian.
Example. A parent opens a demat account for her minor child as natural guardian.
Exam trap. This statement is false: Only adults acting alone may open demat accounts.
BO ID
Every account has a unique BO ID: for NSDL a DP ID beginning with 'IN' followed by an 8-digit client ID, and for CDSL a 16-digit ID of DP ID and client ID.
Example. An investor quotes her 16-digit ID in a trade instruction.
Exam trap. This statement is false: The BO ID is the same for all of an investor's accounts.
Transaction and holding statements
A DP sends a statement of transactions at least monthly when there are transactions, and a statement of holdings at least quarterly otherwise.
Example. An account with trades receives a monthly statement.
Exam trap. This statement is false: A DP need not send any statements.
Tariff and charges
The DP must disclose its tariff and cannot charge beyond what it has disclosed; it levies charges such as annual maintenance and debit transaction fees.
Example. The tariff sheet lists the annual maintenance charge.
Exam trap. This statement is false: A DP may add hidden charges at its own choice.
Account closure
A BO can close the account by request after transferring securities, and a DP can close an account only by giving notice to the BO.
Example. A BO moves holdings to another account and closes the first.
Exam trap. This statement is false: A DP can close an account without notice to the BO.
Power of attorney and DDPI
A BO may authorise a broker or another person to act through a power of attorney or demat debit and pledge instruction, which is optional and must follow SEBI rules.
Example. A client signs a DDPI so her broker can deliver shares for settlement.
Exam trap. This statement is false: A power of attorney is mandatory to open a demat account.
Change of details
A BO may change address, bank details, signature or nomination by sending a request with supporting documents to the DP.
Example. A client updates her address with fresh proof.
Exam trap. This statement is false: Details cannot be changed after the account is opened.
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 statement best describes “Types of accounts”?
- Demat accounts may be opened by individuals, joint holders, HUFs, companies, trusts, NRIs and minors through a guardian.
- Debt securities such as debentures and bonds are instruments by which an issuer borrows and pays interest, and can be held in demat form.
- An off-market transfer is a transfer of securities directly between two BOs without a trade on an exchange, such as a gift or family transfer.
- The registrar verifies the request and certificates, cancels them, confirms to the depository, and the depository credits the account.
Q2. Which term is described here? Every account has a unique BO ID: for NSDL a DP ID beginning with 'IN' followed by an 8-digit client ID, and for CDSL a 16-digit ID of DP ID and client ID.
- BO ID
- Pay-in and pay-out
- Market intermediaries
- Settlement guarantee and risk
Q3. Which term is described here? A DP sends a statement of transactions at least monthly when there are transactions, and a statement of holdings at least quarterly otherwise.
- Transaction and holding statements
- Role of the registrar in demat
- Change of details
- Mismatch of details
Q4. Which statement best describes “Account holder”?
- A depository is an organisation that holds securities of investors in electronic form and facilitates their transfer through book entries.
- A beneficial owner (BO) account, or demat account, holds securities in electronic form and is opened with a DP.
- Securities may be delivered at the usual pay-in time or earlier, called early pay-in, and the DP processes instructions before the deadline.
- 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.
Q5. Which statement best describes “Power of attorney and DDPI”?
- A nominee receives the securities as a trustee for the legal heirs when the law provides so, while a legal heir has a right under succession law.
- A DP must be registered with SEBI and admitted by the depository, and must meet net worth and other requirements.
- A BO may authorise a broker or another person to act through a power of attorney or demat debit and pledge instruction, which is optional and must follow SEBI rules.
- A Subsidiary General Ledger (SGL) account with the RBI holds government securities in electronic form for eligible institutions.
Q6. Which statement best describes “Beneficial owner account”?
- A beneficial owner (BO) account, or demat account, holds securities in electronic form and is opened with a DP.
- Cash benefits such as dividends are paid directly to the BO's bank account, using details held by the depository or issuer.
- 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.
- Pledged securities cannot be sold or transferred until the pledge is closed or invoked, and any partial release is handled by the pledgee.
Frequently asked questions
How much of NISM Series VI comes from Unit 4?
Unit 4 (Functions of DP: account opening) usually carries about 12% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series VI Unit 4?
Account opening process. KYC and PAN. Types of accounts. Statements and tariff.
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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