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NISM Certifications · NISM-Series-VI: Depository Operations · Introduction to the Indian Capital Market

Ananya, a new investor, asks a depository participant (DP) why she needs a demat account to hold shares bought on the NSE. Which statement best describes the role of a depository in the Indian capital market?

A depository holds investors' securities in electronic form and allows ownership to be transferred through book entries. It does not determine prices, issue shares or assure returns, because price discovery happens on exchanges and investment risk remains with the investor.

  1. AIt holds securities of investors in electronic form and enables their transfer through book entriesCorrect
  2. BIt fixes the price at which securities are traded on exchanges
  3. CIt issues new shares directly to the public on behalf of companies
  4. DIt guarantees the returns on securities held in the account

Explanation

A depository is an entity that holds securities in dematerialised form and facilitates transfer of ownership by book entry. It does not set prices, manage issues or guarantee returns. Price discovery occurs on stock exchanges.

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