Level 2 — RecallBrokerage, Demat & Account Setup

Brokerage, Demat & Account Setup

⏱ 30 minutes40 marksprintable — key stays hidden on paper

Level: 2 (Recall — definitions, standard problems, short derivations) Time Limit: 30 minutes Total Marks: 40

Q1. Define a demat account and a trading account in one line each, and state the primary function of each. (4 marks)

Q2. State the full form of KYC and list any three documents required during the account opening process. (4 marks)

Q3. Explain the T+1 settlement cycle in the Indian stock market. If you sell shares on Monday, on which day are the funds settled to your account (assuming no holidays)? (3 marks)

Q4. Differentiate between a full-service broker and a discount broker by giving any two points of difference. (4 marks)

Q5. A trader buys shares worth $₹50,000$ using a discount broker charging a flat brokerage of $₹20$ per executed order (or 0.03% of turnover, whichever is lower). Calculate the brokerage charged on this buy order. (4 marks)

Q6. State the full forms of AMC and DP (in the context of a demat account). Explain what a DP charge is levied on. (4 marks)

Q7. What does DDPI stand for? State one advantage of using a DDPI over a traditional Power of Attorney (PoA). (4 marks)

Q8. Define a contract note and state two items of information that must appear on it. (4 marks)

Q9. A UPI mandate for an IPO application blocks $₹15,000$ in the investor's bank account. Explain what "blocking" means here and state what happens to the amount if shares are not allotted. (4 marks)

Q10. An investor's holdings statement shows 100 shares of a company purchased at an average cost of $₹250$ , with a current market price of $₹310$ . Calculate the total unrealised profit and the percentage return. (5 marks)

Answer keyMark scheme & solutions

Q1. (4 marks)

Demat account: An account that holds shares and securities in electronic (dematerialised) form. (1 mark) Its function is to store/hold securities safely. (1 mark)
Trading account: An account used to place buy and sell orders on the stock exchange. (1 mark) Its function is to execute transactions (interface with the market). (1 mark)
Why: The demat is a "storage locker"; the trading account is the "order gateway" — both are needed to invest.

Q2. (4 marks)

KYC = Know Your Customer. (1 mark)
Any three documents (1 mark each, max 3): PAN card, Aadhaar (proof of address), bank proof (cancelled cheque/statement), passport-size photograph, signature specimen, income proof (for F&O).
Why: KYC verifies identity, address and financial status as mandated by SEBI/regulators.

Q3. (3 marks)

T+1 means trades are settled one business day after the trade date (T). (1 mark) On T+1, securities are credited to the buyer's demat and funds to the seller. (1 mark)
Sell on Monday (T) ⇒ settlement on Tuesday (T+1). (1 mark)
Why: India moved to T+1 to speed up settlement and reduce risk.

Q4. (4 marks) Any two points (2 marks each):

Full-service broker	Discount broker
Offers research, advisory, relationship manager	Only executes trades, minimal/no advisory
Higher brokerage (often % of turnover)	Low flat-fee brokerage
Full range of services (banking, wealth mgmt)	Bare-bones digital platform

Why: Trade-off between service/advice and cost.

Q5. (4 marks)

Flat brokerage = $₹20$ . (1 mark)
Percentage brokerage = $0.03\% \times 50000 = \dfrac{0.03}{100}\times 50000 = ₹15$ . (2 marks)
Whichever is lower ⇒ $\min(20,15) = ₹15$ . (1 mark)
Brokerage = ₹15.

Q6. (4 marks)

AMC = Annual Maintenance Charge. (1 mark)
DP = Depository Participant. (1 mark)
A DP charge is a fee levied on each debit (sell) transaction from the demat account, i.e., when securities are removed/sold. (2 marks)
Why: AMC is a recurring account-upkeep fee; DP charges apply per delivery/sell debit regardless of quantity.

Q7. (4 marks)

DDPI = Demat Debit and Pledge Instruction. (2 marks)
Advantage (any one, 2 marks): It is limited only to debiting securities for sale and pledging (narrower scope than a broad PoA), giving the broker less/limited authority and hence more security/control to the investor. (2 marks)

Q8. (4 marks)

Contract note: A legal document (confirmation) issued by the broker giving details of trades executed on a given day. (2 marks)
Any two items (1 mark each): trade date/time, security name, quantity, price, brokerage, STT/taxes, order/trade number, net amount, client details.
Why: It is the official proof of transaction for records and disputes.

Q9. (4 marks)

"Blocking" means the amount ( $₹15,000$ ) is reserved/frozen in the investor's bank account but not debited; the investor still earns interest and cannot use it meanwhile. (2 marks)
If shares are not allotted, the block is released/unblocked and the full amount becomes available again. (2 marks)
Why: ASBA/UPI mandate ensures funds are debited only on actual allotment.

Q10. (5 marks)

Total cost = $100 \times 250 = ₹25000$ . (1 mark)
Current value = $100 \times 310 = ₹31000$ . (1 mark)
Unrealised profit = $31000 - 25000 = ₹6000$ . (2 marks)
Percentage return = $\dfrac{6000}{25000}\times 100 = 24\%$ . (1 mark)

[
  {"claim":"Q5 brokerage is min(flat 20, 0.03% of 50000) = 15","code":"flat=20; pct=Rational(3,100)/100*50000; result=(min(flat,pct)==15)"},
  {"claim":"Q10 unrealised profit is 6000","code":"cost=100*250; val=100*310; result=(val-cost==6000)"},
  {"claim":"Q10 percentage return is 24 percent","code":"cost=100*250; val=100*310; result=(Rational(val-cost,cost)*100==24)"},
  {"claim":"Q5 percentage brokerage 0.03% of 50000 equals 15","code":"result=(Rational(3,10000)*50000==15)"}
]