Question

The purpose of opening a Demat Account with a Depository Participant (DP) is :

• A. For holding and transferring securities in the Demat form
• B. For entering into an agreement with broker
• C. For making payment to stock exchange for any purchase of securities
• D. For enabling cash transactions in the securities market

Hint:

Remember: A "Demat" account is for shares, while a "Trading" account is used to actually place the buy/sell orders with the broker.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
Dematerialization (Demat) is the process where physical share certificates are converted into electronic form. A Demat account is mandatory for trading in the Indian stock market.
Step 2: Detailed Explanation:
Just as a bank account holds cash in electronic form, a Demat account holds securities (shares, bonds, debentures) in electronic form. The primary purpose is to eliminate the risks of physical certificates (theft, forgery, or damage) and to facilitate the easy "holding and transferring" of these securities during trading.
Step 3: Final Answer:
The correct option is (a).