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Level 4 — ApplicationBrokerage, Demat & Account Setup

Brokerage, Demat & Account Setup

⏱ 60 minutes50 marksprintable — key stays hidden on paper

Level 4 — Application Paper (Novel Problems, No Hints)

Time Limit: 60 minutes Total Marks: 50

Instructions: Attempt all questions. Show every calculation step. Round monetary answers to two decimal places unless stated otherwise. Assume standard Indian market conventions where applicable.

Question 1 (Brokerage & Statutory Cost Comparison) — 14 marks

Rohan is deciding between two brokers for an intraday equity trade. He plans to buy and then sell shares worth ₹2,00,000 on each leg (turnover ₹2,00,000 buy + ₹2,00,000 sell).

  • Broker A (Discount): Flat ₹20 per executed order OR 0.03% of turnover per order, whichever is lower.
  • Broker B (Full-service): 0.30% of turnover per order, no flat cap.

Applicable statutory charges (apply identically to both brokers), for intraday equity:

  • STT: 0.025% on the sell side only
  • Exchange transaction charge: 0.00297% on total turnover
  • SEBI charges: 0.0001% on total turnover
  • GST: 18% on (brokerage + exchange transaction charge)
  • Stamp duty: 0.003% on the buy side only

(a) Compute the total brokerage payable to each broker for the round trip. (4) (b) Compute all statutory charges (they are broker-independent). (5) (c) Compute the total cost (brokerage + statutory) for each broker, and state how much Rohan saves by choosing the cheaper one. (3) (d) Rohan's expected gross profit on the trade is ₹650. State whether he is net profitable with each broker. (2)

Question 2 (T+1 Settlement Application) — 10 marks

Study the following (assume no exchange holidays unless stated):

(a) Priya sells shares on Thursday. On which calendar day do the shares leave her demat and the cash credit settle? Justify with the T+1 rule. (3) (b) Anil buys shares on Friday. On which day are the shares credited to his demat? Show your working, accounting for the weekend. (3) (c) Meera buys shares on Wednesday, but Thursday is a trading holiday. Determine the settlement day. (2) (d) Explain one practical consequence of T+1 (versus the older T+2) for a trader who wants to sell shares and immediately withdraw the proceeds to their bank. (2)

Question 3 (Account Setup Decision Case) — 10 marks

A new investor asks you to design her account setup. She wants to: (i) hold shares long-term, (ii) place trades herself via an app, (iii) minimise annual fixed costs, and (iv) avoid signing anything that gives the broker blanket authority to move her shares.

(a) Distinguish between the demat account and the trading account, stating which one holds the securities and which one executes the order. (3) (b) Recommend DDPI over the traditional Power of Attorney (POA) for requirement (iv), explaining the key protective difference. (3) (c) She is offered two brokers: Broker X charges AMC ₹0 but ₹25 per sell order (DP charge); Broker Y charges AMC ₹300/year but ₹0 DP charge. She expects to make 8 sell transactions per year. Which broker minimises her annual cost, and by how much? (4)

Question 4 (Contract Note & Ledger Reconciliation) — 10 marks

An extract of a contract note for a delivery buy shows:

Item Amount (₹)
Quantity × Price (turnover) 50,000.00
Brokerage 0.00 (zero for delivery)
STT (0.1% buy) ?
Exchange txn charge (0.00297%) ?
SEBI charge (0.0001%) ?
Stamp duty (0.015% buy) ?
GST (18% on brokerage + exch txn) ?
Net payable ?

(a) Compute each missing charge and the net payable amount for this buy. (6) (b) The client's ledger opening balance was ₹1,00,000 (credit). After this trade settles, what is the closing ledger balance? (2) (c) State two distinct pieces of information a contract note legally must contain that a ledger statement typically does not. (2)

Question 5 (Portfolio Statement Interpretation) — 6 marks

A holdings statement shows:

Stock Qty Avg Buy Price (₹) LTP (₹)
ALPHA 100 250.00 310.00
BETA 50 480.00 420.00

(a) Compute the invested value, current value, and unrealised P&L (₹ and %) for each stock. (4) (b) Compute the overall portfolio unrealised P&L (₹ and %). (2)

Answer keyMark scheme & solutions

Question 1

(a) Brokerage (4)

Broker A per order = min(₹20, 0.03% × 2,00,000) = min(20, 60) = ₹20 per order. Two orders (buy + sell) ⇒ ₹40. (2 marks)

Broker B per order = 0.30% × 2,00,000 = ₹600. Two orders ⇒ ₹1,200. (2 marks)

(b) Statutory charges (5) — total turnover = ₹4,00,000; buy = ₹2,00,000; sell = ₹2,00,000.

  • STT (sell only) = 0.025% × 2,00,000 = ₹50.00 (1)
  • Exchange txn = 0.00297% × 4,00,000 = ₹11.88 (1)
  • SEBI = 0.0001% × 4,00,000 = ₹0.40 (1)
  • Stamp duty (buy only) = 0.003% × 2,00,000 = ₹6.00 (1)
  • GST depends on brokerage (differs by broker), so computed per broker below. (1 for identifying GST is broker-dependent via brokerage)

Note: exchange txn, SEBI, STT, stamp are broker-independent = 50 + 11.88 + 0.40 + 6.00 = ₹68.28 (excluding GST).

(c) Total cost & saving (3)

GST = 18% × (brokerage + exchange txn charge).

Broker A: GST = 0.18 × (40 + 11.88) = 0.18 × 51.88 = ₹9.34 Broker A total = 40 + 68.28 + 9.34 = ₹117.62 (1)

Broker B: GST = 0.18 × (1,200 + 11.88) = 0.18 × 1,211.88 = ₹218.14 Broker B total = 1,200 + 68.28 + 218.14 = ₹1,486.42 (1)

Saving with Broker A = 1,486.42 − 117.62 = ₹1,368.80 (1)

(d) Net profitability (2)

  • With Broker A: 650 − 117.62 = ₹532.38 net profit → profitable (1)
  • With Broker B: 650 − 1,486.42 = −₹836.42 → net loss (1)

Question 2

(a) (3) T+1 = settlement completes one trading day after trade. Trade Thursday (T), settlement Friday (T+1). Shares debited from Priya's demat and cash credited on Friday. (justify: T+1 rule + T+1 is a working day = 2 marks, correct day 1 mark)

(b) (3) Buy Friday (T). T+1 would be Saturday, but markets closed on weekend, so settlement rolls to the next trading day. T+1 counted in trading days ⇒ Monday (assuming Monday is a working day). Shares credited Monday. (2 for weekend reasoning, 1 for day)

(c) (2) Buy Wednesday (T). Thursday is a trading holiday, so it is skipped; next trading day is Friday = settlement day. Shares credited Friday. (1 skip holiday, 1 correct day)

(d) (2) Under T+1 the sale proceeds settle one day sooner than T+2, so the trader receives withdrawable cash a day earlier — faster access to funds/liquidity and quicker bank withdrawal. (any valid consequence = 2)

Question 3

(a) (3) The demat account holds the securities in electronic (dematerialised) form (like a locker). The trading account is used to place/execute buy and sell orders on the exchange (the interface to the market). Orders execute via the trading account; resulting shares are stored in the demat account; funds move via the linked bank account. (1 demat holds, 1 trading executes, 1 linkage)

(b) (3) Traditional POA gives the broker broad authority to operate the demat account, including moving/transferring shares — higher misuse risk. DDPI (Demat Debit and Pledge Instruction) is limited strictly to (i) transfer of securities for settlement of the client's own sales and (ii) pledging for margin. It cannot be used for arbitrary transfers, offering better protection while still enabling seamless selling. Recommend DDPI. (1 POA broad, 1 DDPI limited scope, 1 recommendation)

(c) (4) Broker X annual cost = AMC 0 + 8 × ₹25 = ₹200 (1) Broker Y annual cost = AMC ₹300 + 8 × ₹0 = ₹300 (1) Broker X is cheaper (1) by 300 − 200 = ₹100 per year (1).

(Break-even: DP charges equal AMC when 300/25 = 12 sells; below 12 sells X wins.)

Question 4

(a) (6) Turnover = ₹50,000. Brokerage = 0.

  • STT (0.1% buy) = 0.001 × 50,000 = ₹50.00 (1)
  • Exchange txn (0.00297%) = 0.0000297 × 50,000 = ₹1.485 ≈ ₹1.49 (1)
  • SEBI (0.0001%) = 0.000001 × 50,000 = ₹0.05 (1)
  • Stamp duty (0.015% buy) = 0.00015 × 50,000 = ₹7.50 (1)
  • GST = 18% × (0 + 1.485) = 0.18 × 1.485 = ₹0.27 (1)
  • Net payable = 50,000 + 50 + 1.49 + 0.05 + 7.50 + 0.27 = ₹50,059.31 (1)

(Using unrounded exch charge 1.485: 50,000 + 50 + 1.485 + 0.05 + 7.50 + 0.2673 = 50,059.30. Accept ₹50,059.30–50,059.31.)

(b) (2) Closing ledger = 1,00,000 − 50,059.31 = ₹49,940.69 (credit). (1 subtraction, 1 answer)

(c) (2) Any two: trade/order & execution time, unique order/trade numbers, exchange & segment, security ISIN, SEBI/broker registration number, brokerage & itemised statutory charges per trade. (A ledger just shows running debit/credit balances, not per-trade execution detail.) (1 each)

Question 5

(a) (4)

ALPHA: invested = 100 × 250 = ₹25,000; current = 100 × 310 = ₹31,000; P&L = +₹6,000 = +24.00% (1+1) BETA: invested = 50 × 480 = ₹24,000; current = 50 × 420 = ₹21,000; P&L = −₹3,000 = −12.50% (1+1)

(b) (2) Total invested = 49,000; total current = 52,000; P&L = +₹3,000; % = 3,000/49,000 = +6.12%. (1 ₹, 1 %)

[
  {"claim":"Q1 Broker A total cost = 117.62","code":"brok=40; stat=50+11.88+0.40+6.00; gst=0.18*(40+11.88); total=round(brok+stat+gst,2); result = total==117.62"},
  {"claim":"Q1 Broker B total cost = 1486.42","code":"brok=1200; stat=50+11.88+0.40+6.00; gst=round(0.18*(1200+11.88),2); total=round(brok+stat+gst,2); result = abs(total-1486.42)<0.01"},
  {"claim":"Q1 saving = 1368.80","code":"a=117.62; b=1486.42; result = round(b-a,2)==1368.80"},
  {"claim":"Q3 Broker X cheaper by 100","code":"X=0+8*25; Y=300+8*0; result = (X<Y) and (Y-X)==100"},
  {"claim":"Q4 net payable approx 50059.30","code":"t=50000; stt=0.001*t; exch=0.0000297*t; sebi=0.000001*t; stamp=0.00015*t; gst=0.18*(0+exch); net=t+stt+exch+sebi+stamp+gst; result = abs(net-50059.30)<0.05"},
  {"claim":"Q5 portfolio P&L = 3000 and 6.12%","code":"inv=100*250+50*480; cur=100*310+50*420; pl=cur-inv; pct=round(pl/inv*100,2); result = (pl==3000) and (pct==6.12)"}
]