Chapter-6 depository

✅ 1. Multiple Choice Questions (10 Questions with Anss)

Q1. What is the main function of a depository?
a) Printing money
b) Holding securities in physical form
c) Holding securities in electronic form
d) Providing insurance
Ans: ✅ c) Holding securities in electronic form

Q2. Which of the following is a depository in India?

a) BSE
b) NSE
c) NSDL
d) SEBI
Ans: ✅ c) NSDL

Q3. What is required to open an account with a depository?

a) Bank account only
b) PAN card only
c) Demat account
d) Insurance policy
Ans: ✅ c) Demat account

Q4. Who acts as an intermediary between investors and depository?

a) Mutual fund agent
b) Depository Participant
c) Insurance agent
d) RBI
Ans: ✅ b) Depository Participant

Q5. Which is a feature of a depository system?

a) Physical handling of shares
b) Risk of loss due to theft
c) Immediate transfer of ownership
d) No investor protection
Ans: ✅ c) Immediate transfer of ownership

Q6. Which among the following is NOT an advantage of a depository?

a) Quick settlement
b) Reduced paperwork
c) Theft of certificates
d) Less chances of fraud
Ans: ✅ c) Theft of certificates

Q7. What does NSDL stand for?

a) National Software Data Line
b) National Securities Depository Limited
c) New Securities Development Line
d) None of the above
Ans: ✅ b) National Securities Depository Limited

Q8. A Demat account holds:

a) Fixed deposits
b) Loans
c) Electronic securities
d) Credit cards
Ans: ✅ c) Electronic securities

Q9. How many depositories are operating in India currently?

a) One
b) Two
c) Three
d) Four
Ans: ✅ b) Two

Q10. Which of the following is NOT a role of a Depository Participant?

a) Opening Demat accounts
b) Maintaining electronic holdings
c) Manufacturing shares
d) Transmitting instructions to depository
Ans: ✅ c) Manufacturing shares

✅ 2. True or False (5 Statements with Anss)

Q1. A depository allows investors to hold and transfer securities electronically.
Ans: ✅ True

Q2. NSDL and CDSL are both stock exchanges in India.

Ans: ❌ False

Q3. Physical share certificates are mandatory in the depository system.

Ans: ❌ False

Q4. A depository participant acts as a link between investors and the depository.
Ans: ✅ True

Q5. In the depository system, the risk of theft and forgery is reduced.
Ans: ✅ True

✅ 3. Full Forms of Terms (5 Terms)

Abbreviation Full Form
NSDL National Securities Depository Limited
CDSL Central Depository Services (India) Limited
DP Depository Participant
ISIN International Securities Identification Number
IPO Initial Public Offering

✅ 4. Short Ans Type Questions (8 Questions – 2 Marks Each)

Q1. What is a depository?
Ans: A depository is an institution that holds securities like shares and debentures in electronic form and
facilitates their transfer and settlement.

Q2. Name the two depositories operating in India.

Ans: The two depositories are NSDL (National Securities Depository Limited) and CDSL (Central Depository
Services India Limited).
Q3. What is the role of a Depository Participant (DP)?
Ans: A DP acts as a link between the investor and the depository, helping in opening Demat accounts and
providing related services.

Q4. What are the benefits of holding securities in Demat form?

Ans: Benefits include easy transfer, elimination of theft/fraud, faster settlements, and reduced paperwork.

Q5. What is an ISIN?

Ans: ISIN (International Securities Identification Number) is a unique code that identifies a specific security
globally.

Q6. Define Dematerialization.

Ans: Dematerialization is the process of converting physical share certificates into electronic form.

Q7. Mention any two functions of a depository.

Ans:
1. Holding securities electronically
2. Facilitating transfer and settlement of securities

Q8. What is a Demat account?

Ans: A Demat account is an account used to hold securities in electronic format, similar to a bank account for
money.

✅ 5. Long Ans Type Questions (8 Questions – 4 Marks Each)

Q1. Explain the need for a depository system in India.
Ans: The depository system eliminates problems like fake shares, theft, delays in transfer, and cumbersome
paperwork. It ensures faster settlement, increased transparency, and promotes wider participation in the
capital market.

Q2. Discuss the benefits of a depository for investors.

Ans:
 Easy transfer of securities
 Reduction in transaction costs
 Elimination of forgery and loss
 Quicker settlements
 Holding all securities in a single Demat account

Q3. Differentiate between NSDL and CDSL.

Ans:
 NSDL was the first depository in India (1996), promoted by NSE.
 CDSL was launched later (1999), promoted by BSE.
 Both provide similar services but are linked to different exchanges.

Q4. Describe the functions of a Depository Participant (DP).

Ans:
 Opening and maintaining Demat accounts
 Facilitating dematerialization and rematerialization
 Transmitting instructions between investors and depository
 Providing periodic account statements and other investor services

Q5. Explain the process of dematerialization.

Ans:
 Investor submits Demat Request Form and physical certificates to DP
 DP forwards the request to the depository
 Depository verifies and approves the request
 Physical shares are destroyed, and equivalent electronic shares are credited to the investor’s Demat
account

Q6. How does a depository help in reducing risks in the securities market?
Ans:
 Eliminates risk of theft and forgery
 Prevents loss or damage of physical certificates
 Reduces human error
 Enables real-time tracking and auditing

Q7. What is the importance of ISIN in a depository system?

Ans:
ISIN provides a unique identity to each security, facilitating error-free transactions, global recognition, and
standardized recordkeeping.

Q8. Discuss the impact of depositories on capital markets in India.

Ans:
Depositories have modernized trading, improved investor confidence, increased transparency, reduced costs,
and made securities trading faster and safer.

✅ 6. Case Study Based Questions (5 Case Studies × 3 Questions Each)

📘 Case Study 1:
Anil opened a Demat account through his Depository Participant and converted his physical shares into
electronic form.
Q1. What is the process of converting physical shares called?
Ans: Dematerialization
Q2. Who facilitated the conversion for Anil?
Ans: Depository Participant (DP)
Q3. Which type of account is used to hold electronic shares?
Ans: Demat Account

📘 Case Study 2:
Seema wants to buy shares of a company. She already has a Demat account with a DP linked to CDSL.
Q1. Which depository is Seema connected to?
Ans: CDSL
Q2. What role does the Depository Participant play?
Ans: Acts as an intermediary between Seema and CDSL
Q3. Can Seema receive the shares in physical form?
Ans: No, shares are held electronically

📘 Case Study 3:
Ravi forgot to renew his physical share certificates and later found them missing. He decided to open a Demat
account.
Q1. What risk did Ravi face with physical shares?
Ans: Risk of loss/damage
Q2. How does a Demat account solve this issue?
Ans: It stores securities electronically, eliminating physical risk
Q3. Which institution will now hold Ravi’s shares electronically?
Ans: A depository (e.g., NSDL or CDSL)

📘 Case Study 4:
Priya receives an ISIN for her newly purchased securities. She uses this number during online trading.
Q1. What does ISIN stand for?
Ans: International Securities Identification Number
Q2. Why is ISIN important?
Ans: It uniquely identifies a security and prevents errors
Q3. Where is ISIN used?
Ans: In depository and trading systems

📘 Case Study 5:
A company switches from issuing physical share certificates to managing everything through a depository.
Q1. What system is the company now using?
Ans: Depository system
Q2. Name any one depository in India.
Ans: NSDL or CDSL
Q3. What are the advantages of this system?
Ans: Reduced paperwork, faster settlement, security, cost efficiency
 Chapter-7: mutual funds
✅ 1. Multiple Choice Questions (10 Questions with Anss)
Q1. Mutual funds pool money from:
a) Government
b) One individual
c) Many investors
d) Banks
Ans: ✅ c) Many investors

Q2. What is the full form of NAV?

a) Net Actual Value
b) Nominal Asset Value
c) Net Asset Value
d) National Asset Volume
Ans: ✅ c) Net Asset Value

Q3. Who manages the pooled money in mutual funds?

a) Investors
b) Trustees
c) Fund Manager
d) Stock broker
Ans: ✅ c) Fund Manager

Q4. Mutual funds invest in:

a) Real estate only
b) Only in gold
c) A wide range of securities
d) Currencies only
Ans: ✅ c) A wide range of securities

Q5. Mutual fund schemes are regulated by:

a) RBI
b) SEBI
c) IRDA
d) SBI
Ans: ✅ b) SEBI

Q6. Which mutual fund invests mainly in equity shares?

a) Debt fund
b) Balanced fund
c) Equity fund
d) Liquid fund
Ans: ✅ c) Equity fund

Q7. Which mutual fund provides both growth and income?

a) Sector fund
b) Balanced fund
c) Gilt fund
d) Debt fund
Ans: ✅ b) Balanced fund

Q8. Liquid funds are best for:

a) Long-term growth
b) Short-term investment
c) High-risk returns
d) Fixed assets
Ans: ✅ b) Short-term investment

Q9. Which document contains details of mutual fund objectives, strategies, etc.?
a) Dividend warrant
b) Fund receipt
c) Offer document
d) Certificate of deposit
Ans: ✅ c) Offer document

Q10. What is the main advantage of mutual funds?

a) Only professionals can invest
b) Fixed income guarantee
c) Risk reduction through diversification
d) No regulation
Ans: ✅ c) Risk reduction through diversification

✅ 2. True / False (5 Statements with Anss)

Q1. Mutual funds are not regulated by any authority.
Ans: ❌ False

Q2. Equity mutual funds invest in shares of companies.

Ans: ✅ True

Q3. Investors in mutual funds have direct ownership of shares bought by the fund.
Ans: ❌ False

Q4. Liquid funds are suitable for investors with a short investment horizon.
Ans: ✅ True

Q5. The Net Asset Value of a fund changes daily.

Ans: ✅ True

✅ 3. Full Forms of Terms (5 Terms)

Term Full Form
NAV Net Asset Value
SEBI Securities and Exchange Board of India
AMC Asset Management Company
SIP Systematic Investment Plan
AUM Assets Under Management

✅ 4. Short Ans Type Questions (8 Questions with Anss – 2 Marks Each)

Q1. What is a mutual fund?
Ans: A mutual fund is a financial vehicle that pools money from multiple investors to invest in various
securities like stocks, bonds, and other assets, managed by professional fund managers.

Q2. Define NAV.

Ans: NAV (Net Asset Value) is the per-unit market value of all the securities held by a mutual fund after
deducting liabilities, calculated daily.

Q3. What is the role of an Asset Management Company (AMC)?

Ans: AMC manages the funds of investors, makes investment decisions, and ensures the fund’s objectives are
met.

Q4. Mention two types of mutual funds based on asset class.

Ans: (i) Equity Funds, (ii) Debt Funds

Q5. Who regulates mutual funds in India?

Ans: SEBI (Securities and Exchange Board of India) regulates mutual funds in India.

Q6. What is a Systematic Investment Plan (SIP)?

Ans: SIP is a method of investing in mutual funds in fixed amounts at regular intervals, helping to build wealth
over time.

Q7. Give any two benefits of investing in mutual funds.

Ans: (i) Professional fund management, (ii) Diversification of investment

Q8. What is a balanced mutual fund?

Ans: A balanced fund invests in both equity and debt instruments to provide a mix of income and growth.

✅ 5. Long Ans Type Questions (8 Questions with Anss – 4 Marks Each)

Q1. Explain the working of a mutual fund.
Ans: Investors pool their money in a mutual fund, which is managed by an AMC. The fund manager invests the
money in different financial instruments like equities, debt, etc., according to the fund’s objective. The profits
or losses are shared by investors based on their investment proportion. The NAV reflects the performance of
the fund.

Q2. Describe the types of mutual funds based on structure.

Ans:
 Open-ended Fund: Investors can buy/sell units anytime.
 Close-ended Fund: Units can be bought only during the NFO period and redeemed at maturity.
 Interval Fund: Combines features of both; transactions allowed at specific intervals.

Q3. What are the advantages of mutual funds?

Ans:
1. Diversification
2. Professional Management
3. Liquidity
4. Transparency
5. Low cost

Q4. Write a note on equity mutual funds and their features.

Ans: Equity funds invest primarily in shares of companies. They offer high return potential and are suitable for
long-term investors. They involve market risks and are managed by experts to maximize capital appreciation.

Q5. How is NAV calculated in a mutual fund?

Ans:
NAV = (Total Assets – Total Liabilities) / Number of outstanding units
It is calculated daily after the market closes and shows the per-unit value of the fund.

Q6. What precautions should an investor take before investing in mutual funds?
Ans:
 Read the offer document carefully
 Understand the fund’s objective
 Check past performance and risks
 Choose the right fund type
 Know exit loads and charges

Q7. Differentiate between Equity and Debt mutual funds.

Ans:
Feature Equity Fund Debt Fund
Investment In shares In bonds/debentures
Risk High Low
Return High (potential) Moderate/stable
Suitable for Long-term investors Conservative investors

Q8. Explain the concept of SIP and its benefits.

Ans: SIP allows investors to invest a fixed amount in mutual funds at regular intervals.
Benefits:
 Promotes disciplined investing
 Reduces market timing risk
 Averages cost of investment
 Convenient and flexible

✅ 6. Case Study Based Questions (5 Cases × 3 Questions with Anss)

📘 Case Study 1:
Amit wants to invest in mutual funds but doesn't have much knowledge. He approaches a fund manager who
guides him to start a SIP.
Q1. What type of investment plan is Amit advised to use?
Ans: Systematic Investment Plan (SIP)
Q2. Why is SIP suitable for beginners?
Ans: It promotes disciplined investing with low amounts at regular intervals.
Q3. Who guides Amit in this case?
Ans: Fund Manager

📘 Case Study 2:
Priya invests in a mutual fund that invests 60% in stocks and 40% in bonds.
Q1. What type of mutual fund is this?
Ans: Balanced Fund
Q2. What is the benefit of such funds?
Ans: Provides both growth (from equity) and stability (from debt)
Q3. Is this fund less risky than pure equity funds?
Ans: Yes, it carries lower risk due to diversification

📘 Case Study 3:
Rahul checked the NAV of his mutual fund and found it increased compared to last week.
Q1. What does an increase in NAV indicate?
Ans: Appreciation in the value of fund’s holdings
Q2. Who calculates NAV?
Ans: The AMC or mutual fund company
Q3. How often is NAV updated?
Ans: Daily (end of each trading day)

📘 Case Study 4:
A mutual fund is being advertised as "Open-ended" and can be bought anytime.
Q1. What is the structure of this mutual fund?
Ans: Open-ended Fund
Q2. Can investors enter/exit anytime?
Ans: Yes
Q3. Is there a maturity period for open-ended funds?
Ans: No, they don’t have a fixed maturity

📘 Case Study 5:
Sunita read the offer document before investing in a mutual fund. She saw details like fund objective, load
fees, and risk factors.
Q1. What is the importance of the offer document?
Ans: It provides full details about the mutual fund scheme
Q2. What type of investor is Sunita?
Ans: Informed and cautious
Q3. Why should every investor read the offer document?
Ans: To understand the fund's goals, risks, and charges before investing