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

An investor in a demat account holds a corporate bond and asks what happens on the maturity date. Which is the correct DP-level position regarding the redemption of the debt security?

On maturity of a demat debt security, the depository debits the bonds from the holder's account as part of the redemption corporate action, and the issuer pays the proceeds through its agent. The DP does not pay from its own funds, and no physical certificate is surrendered.

  1. AThe investor must physically surrender a certificate to receive redemption
  2. BThe depository debits the bonds from the demat account on redemption and the issuer pays the proceeds through its agentCorrect
  3. CThe DP pays the redemption amount out of its own funds
  4. DThe bond remains in the account indefinitely after maturity

Explanation

On redemption of a demat debt security, the holding is extinguished by debit in the account based on the issuer's corporate action, while the payment is made by the issuer through its payment mechanism. The DP does not pay from its own funds and no physical surrender is required.

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