Question:
The purpose of opening a Demat Account with a Depository Participant (DP) is:
The purpose of opening a Demat Account with a Depository Participant (DP) is:
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Remember: Demat Account = Holds shares. Bank Account = Holds money. Trading Account = Executes the buy/sell orders.
Updated On: Jun 25, 2026
- For holding and transferring securities in the Demat form
- For entering into an agreement with broker
- For making payment to stock exchange for any purchase of securities
- For enabling cash transactions in the securities market
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The Correct Option is A
Solution and Explanation
Step 1: Concept
Dematerialization and Trading Procedure.
Step 2: Meaning
Before an investor can trade on the stock exchange, they must open a specific account to safely hold their financial assets in an electronic format.
Step 3: Analysis
• Options (C) and (D) are incorrect because cash transactions and payments are handled through a standard bank account linked to the trading account, not the Demat account itself.
• Option (B) is incorrect because an agreement with a broker is a separate procedural step (opening a Trading Account).
• Option (A) is correct. "Demat" stands for Dematerialized. Its sole purpose is to act like a digital vault for holding and transferring shares and securities electronically.
Step 4: Conclusion
A Demat account's primary function is to hold securities in electronic (dematerialized) form.
Final Answer: (A)
Dematerialization and Trading Procedure.
Step 2: Meaning
Before an investor can trade on the stock exchange, they must open a specific account to safely hold their financial assets in an electronic format.
Step 3: Analysis
• Options (C) and (D) are incorrect because cash transactions and payments are handled through a standard bank account linked to the trading account, not the Demat account itself.
• Option (B) is incorrect because an agreement with a broker is a separate procedural step (opening a Trading Account).
• Option (A) is correct. "Demat" stands for Dematerialized. Its sole purpose is to act like a digital vault for holding and transferring shares and securities electronically.
Step 4: Conclusion
A Demat account's primary function is to hold securities in electronic (dematerialized) form.
Final Answer: (A)
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