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: Demat Account = Holds shares. Bank Account = Holds money. Trading Account = Executes the buy/sell orders.

Answer 1

The Correct Option is A

Step 1: Understand the question.
The question asks about the purpose of opening a Demat Account with a Depository Participant (DP).
Step 2: Understand what a Demat Account is.
Demat stands for Dematerialised. Before the introduction of the Demat system, shares were held in physical paper form (share certificates). The Demat account replaced this by converting and holding all shares and securities in electronic (digital) form, just like a bank account holds money electronically.
Step 3: Evaluate option (A): For holding and transferring securities in the Demat form.
This is the primary and exact purpose of a Demat account. It acts as a digital safe where your securities (shares, bonds, debentures, mutual fund units) are stored. When you buy or sell, the securities are credited or debited from this account electronically. This is correct.
Step 4: Evaluate option (B): For entering into an agreement with a broker.
The agreement with a broker is done when you open a Trading Account, not a Demat account. These are separate accounts. So option (B) is incorrect.
Step 5: Evaluate option (C): For making payment to the stock exchange for any purchase of securities.
Payments for buying or selling securities are made through a linked bank account, not the Demat account. The Demat account only holds the securities, not the money. So option (C) is incorrect.
Step 6: Evaluate option (D) and conclude.
A Demat account facilitates electronic (non-cash) transactions in securities, not cash transactions. Option (D) is also incorrect. The correct and sole purpose of the Demat account is to hold and transfer securities in electronic form, which is option (A).
\[ \boxed{ \text{(A) For holding and transferring securities in the Demat form} } \]