NISM Certifications · NISM-Series-VI: Depository Operations
Introduction to Depository for NISM Series VI
A depository holds securities in electronic (dematerialised) form and records their transfer by book entry, much as a bank holds money. Investors deal through depository participants. To solve questions, learn the definitions, the depository versus bank differences, the roles of NSDL, CDSL and DPs, and the Depositories Act, 1996.
What this chapter covers
This chapter is the base of NISM-Series-VI. It explains what a depository is, why India moved from paper share certificates to electronic holding, and who does what in the system. You meet the key players: the depository, the depository participant (DP), the issuer or its registrar, and the investor (beneficial owner).
The chapter also compares a depository with a bank. Both hold assets for clients and move them on instruction. But one holds securities and the other holds money, and the details differ. Questions often test this comparison.
Later chapters go deeper into account opening, dematerialisation, transfers, pledge, corporate actions and DP compliance. All of them assume you know the terms here. If you are weak on this chapter, the rest of the paper feels harder. The paper is 100 questions, 100 marks, 2 hours, pass mark 60%, with negative marking of 25% of the marks assigned to a question.
This chapter has mostly definition and fact-based questions, which are easy marks if your basics are clear. It is short compared with the operational chapters, so the effort-to-marks ratio is good. It also supports every later chapter, because the vocabulary is reused everywhere. With a pass mark of 60% and negative marking of 25% of the marks assigned to a question, you cannot afford to guess on easy factual questions. Accurate answers here give you a cushion for harder chapters.
Introduction to Depository: topics in the order to study them
- 1Concept and Need for a DepositoryStart here to understand the problems of paper certificates and the idea of holding securities electronically, which everything else builds on.
- 2Depository vs Bank: Functions and ComparisonThe bank analogy fixes the concept in your mind and covers a frequently tested comparison.
- 3Benefits and Features of the Depository SystemOnce you know the concept, the benefits for investors, issuers and the market are easy to understand and remember.
- 4Depository Participants and Their RoleInvestors reach the depository only through DPs, so you need this link before learning the two depositories.
- 5Indian Depositories: NSDL and CDSLWith the structure clear, learn the two operating depositories and how they fit into it.
- 6Legal Framework: Depositories Act 1996 and SEBI RegulationsStudy the law last, so each rule attaches to a function you already understand.
How to prepare Introduction to Depository
Aim for clear definitions first, then comparisons, then exact facts. Short, repeated sessions work well on a phone.
- Read the concept topic once and explain in your own words why paper certificates caused problems and what dematerialisation changes.
- Make a two-column list of depository versus bank. Cover each row and recall the other side from memory.
- Write down the benefits and group them by who gains: investor, issuer, market.
- Draw a simple chain: investor, DP, depository, issuer or registrar. Label what each party does and who holds the account.
- List facts about NSDL, CDSL and the Depositories Act, 1996 as short flashcards. Check each fact against your NISM workbook before you memorise it.
- Take topic-wise MCQs. For every wrong answer, note the trap and the exact rule.
- Revise the whole chapter the day before using your own one-line notes.
Common mistakes in Introduction to Depository
Treating a depository and a bank as the same thing
Fix: Remember the core difference: one holds securities, the other holds money. Revise the comparison rows, not just the similarities.
Thinking investors open accounts directly with NSDL or CDSL
Fix: Remember that the account is opened through a DP, which is the intermediary between investor and depository.
Mixing up the roles of the depository, the DP and the issuer's registrar
Fix: Write one line for each role and test yourself on who does what in a simple dematerialisation example.
Guessing on law-based questions
Fix: Learn the Act and regulation names and their purpose. Answer only if you can eliminate options, as wrong answers carry a penalty.
Memorising benefits as a long list without understanding
Fix: Link each benefit to the paper-based problem it removes. Then trap options become easy to spot.
Last-day revision: Introduction to Depository
- A depository holds securities in electronic form and transfers them by book entry.
- Dematerialisation means converting physical securities into electronic form.
- A depository is like a bank, but it holds securities, not money.
- The investor does not deal with the depository directly; the investor deals through a DP.
- A DP acts as the agent of the depository and is the link to the investor.
- The investor whose name is in the DP account is the beneficial owner.
- India has two depositories: NSDL and CDSL.
- The Depositories Act, 1996 provides the legal basis for depositories in India.
- SEBI regulates depositories and DPs through its regulations.
- Electronic holding reduces risks like loss, theft, forgery and delays linked to paper certificates.
- Negative marking in this exam is 25% of the marks assigned to a question.
Introduction to Depository practice questions
- Mr. Sameer Joshi has securities in a demat account with a DP of NSDL. He wants to understand which entity is responsible for maintaining the…
- Ms. Rao wants to hold securities in demat form. Under the depository structure in India, with whom does she open her demat account?
- A depository is dealing with a DP that has repeatedly failed to follow its operating norms. Which feature of the depository framework allows…
- Mr. Iyer wants to know who regulates the activities of depositories and DPs in India. Which statement is correct?
- Under the Depositories Act, 1996, when securities of an investor are held in a depository in dematerialised form, who is recorded as the reg…
- Which of the following is the primary function of a depository in the Indian securities market?
- Mrs. Meera Nair holds shares in her demat account, and the company is registered as the issuer. In depository records, who is shown as the r…
- Which of the following is a key benefit of a depository system for investors compared with holding physical share certificates?
Introduction to Depository in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Introduction to Depository: frequently asked questions
What is a depository in simple words?
A depository is an organisation that holds investors' securities in electronic form and records their transfer by book entry. It works like a bank for securities. Investors use it through depository participants.
How many depositories are there in India?
There are two main depositories in India: NSDL and CDSL. Both operate under the Depositories Act, 1996 and SEBI rules.
Can I open a demat account directly with NSDL or CDSL?
No. You open the account through a depository participant, which acts as the link between you and the depository.
Is this chapter hard for NISM Series VI?
No, it is mostly conceptual and fact-based. Clear definitions and the depository versus bank comparison are enough to answer most questions.
How should I handle negative marking in this chapter?
Wrong answers cost 25% of the marks assigned to the question. On easy factual questions, you should know the answer. If you can eliminate two options, an educated guess may be reasonable.