Raghav holds 50 shares in his demat account. He decides to sell them…

Raghav holds 50 shares in his demat account. He decides to sell them through his broker. Under the working of the demat system, what instruction must Raghav give his depository participant?

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → To debit his account with the number of shares

Option (1) To credit his account with the number of shares — Incorrect. A credit adds shares to the account. It happens when shares come in, for example on allotment in a public offer.

Option (2) To debit his account with the number of shares — Correct. A sale takes shares out of Raghav’s account. So he tells his DP to debit his account with the number of shares to be sold through the broker.

Option (3) To rematerialise the shares before the sale — Incorrect. Rematerialisation means turning electronic holdings back into physical certificates. Shares in demat form are sold as they are, with no certificates needed.

Option (4) To deliver the shares directly to the stock exchange — Incorrect. Raghav does not deal with the stock exchange himself. The broker then tells his own DP to deliver the shares to the stock exchange.

NCERT (Pre-rationalised Edition): “Working of the Demat System 1. A depository participant (DP), either a bank, broker, or financial services company, may be identified.
2. An account opening form and documentation (PAN card details, photograph, power of attorney) may be completed.
3. The physical certificate is to be given to the DP along with a dematerialisation request form.
4. If shares are applied in a public offer, simple details of DP and demat account are to be given and the shares on allotment would automatically be credited to the demat account.
5. If shares are to be sold through a broker, the DP is to be instructed to debit the account with the number of shares.
6. The broker then gives instruction to his DP for delivery of the shares to the stock exchange.
7. The broker then receives payment and pay the person for the shares sold.”

Raghav holds 50 shares in his demat account. He decides to sell them through his broker. Under the working of the demat system, what instruction must Raghav give his depository participant?

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → To debit his account with the number of shares

Option (1) To credit his account with the number of shares — Incorrect. A credit adds shares to the account. It happens when shares come in, for example on allotment in a public offer.