(B) Depository — It acts like a bank, but instead of holding funds, it holds securities in electronic (demat) form in an account.

Source: Chapter 6, How is a depository similar to a bank?

The passage directly compares a Depository to a bank — a bank holds funds, while a depository holds securities in an account. Do not confuse a Demat Account (which is the account held within a depository) with the depository itself. The question asks about the institution, not the account.

Depository Participants (DPs): According to SEBI regulations, three categories of entities can become DPs — Banks, Financial Institutions, and SEBI registered trading members.

Two Depositories in India:

1. National Securities Depository Limited (NSDL)
2. Central Depository Services (India) Limited (CDSL)

Source: Chapter 6 — Depository Participants and Depositories in India

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• The question has two parts: (i) who can be DPs, and (ii) name two depositories. Address both clearly.
• Examiner expects all three categories of DPs to be named — missing one may cost half a mark.
• NSDL and CDSL are the only two depositories in India; both must be written in full.
• Keep the answer crisp — no elaboration needed for 2 marks.

(C) Yes, the number of shares held by investors increased in proportionate ratio in which a stock split.

In a stock split, existing shares are divided into smaller denominations, increasing the number of shares held by investors in proportion to the split ratio (e.g., 4-for-1 split quadruples the shares held).

The passage clearly states that a stock split increases the number of shares outstanding in proportion to the split ratio (e.g., 2-for-1, 4-for-1). Option (B) is a trap — it says "double," which is only true for a 2-for-1 split, not all splits. Option (C) is the correct general answer. Note: the value of holdings remains unchanged after a split; only the number of shares increases proportionately.

The agents of a Depository are known as Depository Participants (DPs).

Source: Who is a Depository Participant (DP)?, Chapter 6

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The examiner expects just the term "Depository Participants (DPs)" — the full form with abbreviation earns full marks. No further detail is needed for a 1-mark question.

Two services offered by Depository Participants (DPs) to investors are:

1. Transmission of securities — The DP directly transmits securities on behalf of the investor, eliminating the need for correspondence with companies.
2. Change of address registration — A change of address recorded with the DP gets registered electronically with all companies in which the investor holds securities.

Source: Chapter 6, Depository Participants

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The question asks for two services, so two distinct points are sufficient. Examiners expect specific DP services, not general depository benefits. Avoid vague answers like "helps in buying shares." Always name the service clearly and add a brief explanation to secure full marks (1 mark per service).

(D) Custodian — A Custodian keeps the client informed of corporate actions taken or to be taken by the issuer of securities, which have a bearing on the benefits or rights accruing to the client.

A Custodian is responsible for safekeeping client assets and notifying clients about corporate actions (dividends, bonus issues, rights issues, etc.) that affect their holdings. Do not confuse with a Depository Participant, who only facilitates holding of securities in dematerialised form. In MCQs, focus on the phrase "informs client of corporate actions bearing on benefits/rights."

To dematerialise physical securities, the investor must fill a Demat Request Form (DRF), available with the Depository Participant (DP), and submit it along with the physical share certificates. A separate DRF is required for each ISIN number. The shares are then converted into electronic form and held in a demat account through depositories like NSDL or CDSL.

Source: Chapter 6

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• Examiners expect you to mention: DRF, submission of physical certificates, separate DRF per ISIN, and the role of DP/depositories.
• Naming NSDL and CDSL adds value and may fetch full marks.
• Avoid writing about benefits of demat here — that's a different question. Stick to the process only.

Dematerialisation is the process of converting physical share certificates into electronic form, held in a demat account through a depository, making shares fungible and eliminating distinctive numbers.

Source: Chapter 6

The examiner expects a one-line definition covering two key ideas: (1) conversion of physical certificates to electronic form, and (2) the role of a depository/demat account. The word "fungible" is a bonus term that shows understanding. Avoid writing more than one sentence for a 1-mark question.

(B) National Securities Depository Limited (NSDL)

NSDL and CDSL are the two depositories in India that provide dematerialization of securities.

Source: Chapter 6

The passage clearly states there are two depositories — NSDL and CDSL. RBI is the central bank, NSE is a stock exchange, and SEBI is the regulator; none of them provide dematerialization. Examiners expect the correct option with a one-line justification.

(C) Increased trading cost

Dematerialisation actually reduces transaction cost; hence, "Increased trading cost" is NOT a benefit of dematerialisation.

The source passage explicitly lists "Reduction in transaction cost" as a benefit of depository participation. All other options — faster settlement, reduced paperwork, and lower risk of loss/theft — are genuine benefits. Examiners expect the student to identify the odd one out based on the listed benefits.

Two benefits of a Demat account are:

1. Elimination of risks associated with physical certificates such as bad delivery, fake securities, and loss/theft of certificates.
2. No stamp duty on transfer of securities, which reduces the overall transaction cost for investors.

Source: Chapter 6, Benefits of participation in a depository

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The question asks for any two benefits, so pick two distinct points from the list provided. Examiners award 1 mark per valid benefit. State each benefit clearly with a brief explanation — don't just list one-word answers. Avoid repeating the same idea in different words.

The correct answer is (a) Bank.

A bank holds funds in an account, just as a depository holds securities in an account.

The source passage directly states the analogy: "Bank — Holds funds in an account." The question is based on the comparison table between a bank and a depository from Chapter 6. Remember: bank → funds; depository → securities.

(C) Mr. Anil should open a Demat account with a Depository Participant (DP) and dematerialise his shares, eliminating risks like bad delivery and fake certificates before selling.

The source passage clearly states that dematerialisation eliminates risks associated with physical certificates (bad delivery, fake securities, etc.) and ensures immediate transfer of securities. A Demat account with a DP is the correct and safe route to trade on a stock exchange. Physical share certificates cannot be directly traded on modern stock exchanges.

(D) Depository Participant

A Depository Participant (DP) serves as the intermediary (agent) between the depository and the investors, appointed by the depository with SEBI's approval.

Source: Chapter 6, "Who is a Depository Participant (DP)?"

The passage clearly states: "The Depository provides its services to investors through its agents called depository participants (DPs)." In the question, Arron Financials is itself a DP — confirming option (D). Stock exchanges, clearing corporations, and RTAs play different roles and are not described as the depository–investor intermediary in this context.