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NISM-Series-VI: Depository Operations · Foreign Portfolio Investors (FPI)

FPI Demat Account, Custodian Role and Settlement

Updated 11 October 2026 · Fact-checked

A Foreign Portfolio Investor (FPI) holds Indian securities in a demat account opened with a Depository Participant, after a Designated Depository Participant (DDP) grants its registration on behalf of SEBI. The FPI must appoint a SEBI-registered custodian, which typically confirms and settles the FPI's trades and keeps its securities and records.

Understand Operational Aspects: Demat, Custodians and Settlement

An FPI is a foreign investor registered with SEBI to invest in Indian listed securities. It cannot simply walk into the market. It must be registered first. The registration is granted by a Designated Depository Participant (DDP), which is a DP or custodian approved by SEBI for this purpose. The DDP grants the registration on behalf of SEBI and issues the registration certificate. After registration, the FPI can start investing.

To hold securities, the FPI opens a demat account with a DP. The account is opened in the FPI's own name, and the registration details and PAN are linked to it. The FPI also needs a special non-resident rupee account with an Indian bank to move money in and out for its investments.

The custodian is the key operational link. An FPI must appoint a SEBI-registered custodian. The custodian typically confirms the trade details, arranges the movement of funds and securities on settlement day, keeps the FPI's securities and records, and reports to the regulator and the depositories. The FPI trades through a stock broker, and the custodian typically confirms and settles the trade. Settlement can also run through a clearing member or broker-dealer arrangement, so do not treat the custodian as the only possible settler in every case.

The trade and settlement flow is simple. The FPI places the order with a broker. The broker executes it on the exchange. The custodian typically confirms the trade. On the settlement date, the clearing corporation sets obligations. Securities move through the depository: shares are debited from the seller's demat account and credited to the buyer's. Money moves through the bank account. The settlement is on a rolling basis as prescribed by the exchange.

After the purchase, the depository system credits corporate benefits such as bonus and split shares to the demat account. Cash benefits like dividends go to the bank account. The custodian tracks these benefits and reports holdings and transactions as required. For the exam, remember who does what: DDP registers, DP opens the demat account, the custodian typically confirms, settles and reports, and the depository holds the securities in electronic form.

Key formulas to remember

Registration route
FPI → DDP → SEBI registration (via DDP) → certificate
The DDP is the entry point for registration. Do not say the FPI applies directly to the exchange.
Accounts an FPI needs
Demat account (with DP) + bank account (with Indian bank) + PAN
The demat account holds securities. The bank account handles money. Both are linked to the custodian's work.
Role split
Broker = executes trade; Custodian = typically confirms and settles, keeps securities and records; Depository = holds and transfers securities; Clearing corporation = guarantees and nets obligations
Most MCQs test who performs which task.
Settlement entry
Seller's demat account debited ↔ Buyer's demat account credited, with matching funds movement
Securities move only through the depository on a pay-in and pay-out basis.
Corporate benefits
Bonus, split, rights entitlements → demat account; cash dividend → bank account
Securities credit goes to demat. Cash credit goes to bank.

How to solve Operational Aspects: Demat, Custodians and Settlement questions

Most questions on this topic ask you to identify the right entity, the right account or the right step. Use the method below.

  1. 1Read the question and mark the entity: FPI, DDP, DP, custodian, broker, depository or clearing corporation.
  2. 2Identify the stage: registration, account opening, trading, settlement, corporate action or reporting.
  3. 3Match the stage with the entity that owns it. Registration goes to the DDP. Demat account goes to the DP. Confirmation and settlement typically go to the custodian.
  4. 4Decide whether the item is securities or money. Securities go through the demat account. Money goes through the bank account.
  5. 5Eliminate options that make the FPI do the work directly, such as applying to the exchange or operating without appointing a custodian.
  6. 6Watch for absolute words like always, only and never. Rule statements in this area usually have conditions.
  7. 7Pick the option that matches the correct flow and recheck it against the stage.

Quickest way: Entity-to-task matching

When to use it: Use this when the question asks who does a task or which step comes next.

  1. Underline the task word: register, open, confirm, settle, hold, report.
  2. Link it: register = DDP, open account = DP, confirm and settle = typically the custodian, hold = depository.
  3. Check securities versus cash to decide demat or bank.
  4. Strike out options that skip the custodian or the DDP.
  5. Choose the remaining option and move on.

Common mistakes in Operational Aspects: Demat, Custodians and Settlement

  • Saying the FPI registers directly with the exchange.

    Students link investing with the exchange.

    Fix: Remember that registration is granted by a DDP on behalf of SEBI, and the DDP issues the certificate. The exchange has no role in it.

  • Confusing the DDP with any DP.

    Both names look alike.

    Fix: A DDP is a DP or custodian specially approved by SEBI to handle FPI registration. An ordinary DP only opens and maintains demat accounts.

  • Thinking the broker settles the FPI's trade.

    The broker places the order, so students assume it settles it too.

    Fix: The broker executes. The custodian typically confirms and settles on behalf of the FPI.

  • Crediting cash dividend to the demat account.

    Students think everything from a corporate action goes to demat.

    Fix: Only securities such as bonus or split shares go to the demat account. Cash goes to the bank account.

  • Ignoring the role of the depository in settlement.

    Students focus on the exchange and the custodian.

    Fix: Securities move only by debit and credit in demat accounts through the depository. Link every securities movement to the depository.

Worked examples

Example 1

An FPI buys shares of an Indian company on the exchange through a broker. Which entity typically confirms the trade details and arranges settlement on behalf of the FPI?
A. The depository
B. The custodian
C. The issuer company
D. The Registrar and Transfer Agent

Show the solution
  1. The task is confirming trade details and arranging settlement for the FPI.
  2. The broker only executes the trade on the exchange.
  3. The depository holds securities and processes transfers. It does not act for the FPI in confirmation.
  4. The issuer and the RTA handle share records and corporate actions, not the FPI's trade settlement.
  5. The custodian is the entity the FPI must appoint, and it typically confirms and settles the FPI's trades.

Answer: B. The custodian

Example 2

An FPI holds shares in its demat account. The company announces a bonus issue and a cash dividend. Where will the bonus shares and the dividend be credited?
A. Both in the demat account
B. Both in the bank account
C. Bonus shares in the demat account, dividend in the bank account
D. Bonus shares in the bank account, dividend in the demat account

Show the solution
  1. Bonus shares are securities. Securities are held in electronic form in the demat account.
  2. A cash dividend is money. Money is paid to the bank account linked to the investor.
  3. So the bonus goes to demat and the dividend goes to bank.
  4. Options A, B and D mix up securities and cash.

Answer: C. Bonus shares in the demat account, dividend in the bank account

Exam tips

  • Learn the role split among DDP, DP, custodian, broker and depository. Many questions are only a matching exercise.
  • Separate securities flow (demat) from money flow (bank) in every answer.
  • NISM-Series-VI carries negative marking of 25% of the marks assigned to a question. This is a fixed exam rule. Guess only when you can eliminate at least two options.
  • Beware of options where the FPI acts directly without a custodian or DDP. These are usually traps.
  • Revise this topic with the FPI registration and DDP topic, since both appear in the same chapter.

Practice questions from Foreign Portfolio Investors (FPI)

Operational Aspects: Demat, Custodians and Settlement: frequently asked questions

How does an FPI open a demat account in India?

The FPI first gets registered through a Designated Depository Participant. It then opens a demat account with a DP in its own name, giving its registration details and PAN. The account is linked to its custodian arrangements.

What is the role of a custodian for an FPI?

The custodian typically confirms trades, settles them through the demat and bank accounts, keeps the FPI's securities and records and handles corporate action benefits. It also supports reporting to the regulator and depositories.

Who settles an FPI's trade, the broker or the custodian?

The broker executes the trade on the exchange. The custodian typically confirms and settles it for the FPI, though settlement can also run through a clearing member or broker-dealer arrangement. Securities move through the depository and funds move through the bank account.

Where are corporate action benefits credited for an FPI?

Securities benefits like bonus and split shares are credited to the demat account. Cash benefits like dividends are paid to the bank account.