NISM Series VI · Unit 9 of 12 · about 5% of the paper
Functions of DP: corporate actions: NISM Series VI notes and practice questions
How benefits like dividends, bonus and splits reach demat accounts.
What to know in Unit 9
- Record date.
- Cash and non-cash benefits.
- Rights and buyback.
Key terms, examples and exam traps
Corporate action
A corporate action is an event by an issuer, such as a dividend, bonus, split, rights issue or merger, that affects securities and holders.
Example. A company announces a bonus issue to its shareholders.
Exam trap. This statement is false: A corporate action is a trade between two investors.
Record date
The record date is the date on which a holder must be on the company's records to be entitled to the benefit.
Example. A holder on the record date receives the dividend.
Exam trap. This statement is false: The record date is the date the benefit is paid.
Cash benefits
Cash benefits such as dividends are paid directly to the BO's bank account, using details held by the depository or issuer.
Example. A dividend is credited to the shareholder's bank account.
Exam trap. This statement is false: Dividends are credited as securities to the demat account.
Non-cash benefits
Non-cash benefits such as bonus shares and split shares are credited to the demat account of the BO, using fresh ISINs where needed.
Example. Bonus shares appear in the demat account.
Exam trap. This statement is false: Bonus shares are paid by cheque.
Stock split
A stock split reduces the face value of a share and increases the number of shares held, without changing total value.
Example. A ₹10 share is split into two shares of ₹5 each.
Exam trap. This statement is false: A split reduces the number of shares held.
Rights issue
In a rights issue, existing shareholders get the right to subscribe to new shares in proportion to their holdings.
Example. A holder is offered one new share for every four held.
Exam trap. This statement is false: A rights issue is open only to new investors.
Buyback
In a buyback the company purchases its own shares from holders, and the shares tendered are debited from the BO's account.
Example. A holder tenders her shares in the company's offer.
Exam trap. This statement is false: A buyback adds new shares to holders' accounts.
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? A corporate action is an event by an issuer, such as a dividend, bonus, split, rights issue or merger, that affects securities and holders.
- Registrar and transfer agent
- Margin pledge
- Settlement cycle
- Corporate action
Q2. Which statement best describes “Rights issue”?
- Non-cash benefits such as bonus shares and split shares are credited to the demat account of the BO, using fresh ISINs where needed.
- Transposition is a change in the order of names of joint holders, and it is done by the issuer or registrar.
- In a rights issue, existing shareholders get the right to subscribe to new shares in proportion to their holdings.
- A DP must be registered with SEBI and admitted by the depository, and must meet net worth and other requirements.
Q3. Which term is described here? The record date is the date on which a holder must be on the company's records to be entitled to the benefit.
- KYC and PAN
- Hypothecation
- Account holder
- Record date
Q4. Which statement best describes “Non-cash benefits”?
- The Depositories Act, 1996 provides the legal framework for depositories, dematerialisation and the transfer of securities by book entry.
- Non-cash benefits such as bonus shares and split shares are credited to the demat account of the BO, using fresh ISINs where needed.
- The pledgor is the borrower who pledges the securities and the pledgee is the lender who accepts them as security.
- When the loan is repaid, the pledgee closes the pledge, or both parties request closure, and the securities are released.
Q5. Which term is described here? In a buyback the company purchases its own shares from holders, and the shares tendered are debited from the BO's account.
- Delivery instruction slip
- Corporate action
- Buyback
- Nomination
Q6. Which statement about “Record date” is correct?
- Equity trades settle on T+5.
- The record date is the date the benefit is paid.
- A DP is an agent of the investor and not of the depository.
- The record date is the date on which a holder must be on the company's records to be entitled to the benefit.
Frequently asked questions
How much of NISM Series VI comes from Unit 9?
Unit 9 (Functions of DP: corporate actions) usually carries about 5% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series VI Unit 9?
Record date. Cash and non-cash benefits. Rights and buyback.
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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