NISM-Series-VI: Depository Operations · Special Services - Debt Instruments and Government Securities

Settlement and Operations for Debt and G-Sec Transactions

Updated 11 October 2026 · Fact-checked

Debt and G-Sec transactions are settled by moving securities between demat or SGL accounts against funds, usually on a delivery versus payment (DVP) basis through a clearing corporation. Depositories also handle transfer, pledge, and interest or redemption payments using holder records on the record date. Know who settles, who pays, and who holds.

Understand Settlement and Operations for Debt and G-Sec Transactions

Debt securities in demat form are held as electronic entries. Corporate bonds, debentures, commercial paper and certificates of deposit sit in a demat account with a depository participant (DP). Government securities (G-Secs) are held by the RBI in the SGL (Subsidiary General Ledger) system. Retail and other investors usually hold them through a CSGL (constituent SGL) account, which is maintained by an institution that holds the G-Secs on their behalf.

Settlement means the exchange of securities for money. The main safety rule is DVP (delivery versus payment). The securities move only if the money moves. This removes the risk that one side delivers and the other side does not pay. A clearing corporation or the settlement system of the RBI guarantees or coordinates this exchange.

There are three DVP models. In DVP-1, securities and funds are both settled gross, trade by trade. In DVP-2, securities are settled gross and funds are settled net. In DVP-3, both securities and funds are settled net. Remember the pattern: the number tells you how much is netted.

After settlement, the depository handles the operations on the holding. You can transfer securities off-market with a delivery instruction, and you can pledge them as security for a loan. For corporate actions, the issuer fixes a record date. The depository gives the issuer a list of holders on that date. Interest and redemption money goes to the holders on that list, normally to the bank account recorded in the demat account. On redemption, the securities are extinguished and removed from the holders' accounts.

Keep two types apart. A coupon-bearing bond pays interest at fixed intervals. A discount instrument, such as a treasury bill, is issued below face value and redeemed at face value, so it has no coupon.

Key formulas to remember

DVP-1: Securities: gross | Funds: gross; Each trade is settled individually, with securities and funds moving together.
DVP-2: Securities: gross | Funds: net; Securities are settled trade by trade. Funds are netted.
DVP-3: Securities: net | Funds: net; Both are netted. This is the model with the most netting.
Periodic coupon: Coupon = Face value × Annual coupon rate ÷ Number of payments per year; For a half-yearly G-Sec, divide by 2.
Accrued interest (30/360 basis): Accrued interest = Face value × Coupon rate × Days since last coupon ÷ 360; Used for Indian G-Secs, which follow a 30/360 day count. Check the day-count basis stated in the question.
Payment entitlement: Payee = Holder on the record date; The depository's holder list on the record date decides who receives interest or redemption.

How to solve Settlement and Operations for Debt and G-Sec Transactions questions

Use this sequence for any question on settlement or operations in debt or G-Secs.

1Identify the instrument: corporate debt, money market instrument, G-Sec or T-bill.
2Identify where it is held: a demat account with a DP, or an SGL/CSGL account.
3Identify the stage: trade, settlement, transfer, pledge, or interest or redemption.
4For settlement, check the DVP model and ask what is gross and what is net.
5For payments, find the record date and ask who is on the holder list on that date.
6For a calculation, note the face value, rate, payments per year and day-count basis.
7Check the options for absolute words such as 'always' and 'only'. Pick the one that matches the rule exactly.

Quickest way: DVP and record-date shortcut

When to use it: Use this for definition and 'which statement is correct' questions when time is short.

For DVP, read the number as netting. DVP-1 has none, DVP-2 nets funds only, DVP-3 nets both.
For payments, think 'record date list'. The holder on that date gets the money, not the buyer after it.
For G-Secs, think RBI holds, CSGL or demat shows the investor's holding.
For coupons, divide the annual rate by the payments per year, then multiply by face value.
Eliminate any option that says securities move without payment under DVP.

Common mistakes in Settlement and Operations for Debt and G-Sec Transactions

Mixing up DVP-2 and DVP-3.
The numbers look alike and students memorise them without a pattern.
Fix: DVP-1 is all gross, DVP-3 is all net, and DVP-2 is the middle case: securities gross, funds net.
Paying interest to the buyer after the record date.
Students assume the latest owner always gets the payment.
Fix: Interest and redemption go to the holder on the record date, as shown in the depository's records.
Treating a T-bill as a coupon-paying security.
All G-Secs are lumped together.
Fix: T-bills are issued at a discount and redeemed at face value. They pay no periodic coupon.
Using the annual coupon as the periodic payment.
Students forget the payment frequency.
Fix: Divide the annual coupon by the number of payments per year. For half-yearly, divide by 2.
Thinking redemption leaves the securities in the account.
Students confuse redemption with a transfer.
Fix: On redemption, the holder is paid and the securities are extinguished and removed from the accounts.
Believing G-Secs are held in a company's register.
Students apply equity share logic to G-Secs.
Fix: G-Secs are held in the RBI's SGL system. Investors hold them through CSGL or demat accounts.

Worked examples

Example 1

An investor holds a 7% G-Sec with face value ₹1,00,000 that pays interest half-yearly. How much interest will be paid on each coupon date?

Show the solution

Annual interest = ₹1,00,000 × 7% = ₹7,000.
Payments per year = 2, since interest is half-yearly.
Each payment = ₹7,000 ÷ 2 = ₹3,500.

Answer: ₹3,500 per coupon date, paid to the holder on the record date.

Example 2

A buyer purchases a G-Sec of face value ₹10,00,000 with an 8% annual coupon, 30 days after the last coupon date. Using the 30/360 basis, what is the accrued interest?

Show the solution

Annual interest = ₹10,00,000 × 8% = ₹80,000.
Accrued interest = ₹80,000 × 30 ÷ 360.
= ₹80,000 ÷ 12 = ₹6,666.67 (approximately).

Answer: Accrued interest is approximately ₹6,667, which the buyer adds to the price for the part of the coupon period the seller held the security.

Exam tips

Learn DVP-1, DVP-2 and DVP-3 as a netting pattern. Questions often swap the numbers.
Always link payment questions to the record date. This is the usual trap.
For G-Secs, remember SGL, CSGL and demat as the holding routes. Do not mix them with a company register.
In calculations, check the payment frequency and day-count basis before multiplying.
With negative marking in this paper, skip an option you cannot place after eliminating wrong ones, rather than guessing blindly.

Practice questions from Special Services - Debt Instruments and Government Securities

Settlement and Operations for Debt and G-Sec Transactions: frequently asked questions

What does DVP mean in debt settlement?

DVP means delivery versus payment. Securities are delivered only if payment is made at the same time. It removes the risk of one party delivering and the other not paying.

Who receives interest on a demat debt security?

The holder on the record date receives it. The depository gives the issuer the list of holders as on that date. Payment normally goes to the bank account recorded in the demat account.

Can debt securities in demat be pledged?

Yes. Eligible debt securities held in demat can be pledged through the DP, and the pledged units are blocked until the pledge is closed. Check the pledge rules in the related topics.

What happens to demat debt securities on redemption?

The issuer repays the holders and the securities are extinguished. The depository then removes them from the holders' accounts.