The Securities and Exchange Board of India (SEBI) has proposed allowing depositories to utilise up to 5% of the income earned from investments of their Investor Protection Fund (IPF) corpus for meeting administrative and statutory expenses related to the management of the IPF Trust.
The proposal seeks to align the framework for depositories with the existing provisions already applicable to stock exchanges.
What is the Investor Protection Fund (IPF)?
The Investor Protection Fund (IPF) is created to safeguard investors’ interests and provide compensation in certain cases where investors suffer losses due to defaults or operational issues.
The IPF corpus and the income generated from it are currently used for:
- investor education and awareness programmes,
- supporting initiatives of Depository Participants,
- and settlement of legitimate claims of beneficial owners not covered by indemnity insurance.
Existing Rule for Stock Exchanges
At present, stock exchanges are permitted to use up to 5% of the interest or income generated from IPF investments for:
- salaries of dedicated IPF Trust employees,
- administration of Investor Service Centres,
- statutory expenses,
- audit fees,
- taxes,
- and charity commissioner fees.
However, no similar provision currently exists for depositories.
SEBI’s Proposal for Depositories
Under the new proposal, SEBI has suggested that depositories may also use up to 5% of the annual income or interest earned from IPF investments to meet:
- administrative expenses,
- employee-related costs,
- audit charges,
- taxes,
- and other statutory expenses associated with IPF management.
If expenses exceed the 5% limit, the additional cost will have to be borne by the depository itself.
Further, if the permitted amount is not fully utilised during a financial year, the unspent balance must be added back to the IPF corpus.
Depositories Covered
The proposal applies to India’s two major depositories:
- National Securities Depository Limited (NSDL),
- and Central Depository Services Limited (CDSL).
As of 31 March 2026:
- NSDL’s IPF corpus stood at ₹87.78 crore,
- while CDSL’s IPF corpus stood at ₹95.18 crore.
Purpose of the Move
According to SEBI, the proposal is intended to:
- create uniformity between stock exchanges and depositories,
- improve operational efficiency,
- and ensure better management of investor protection mechanisms.
Currently, depositories bear all IPF-related administrative expenses from their own income, even when those expenses directly relate to IPF Trust operations.
Public Consultation
SEBI has invited public comments on the proposal until 1 June 2026 before finalising the framework.
Key Takeaway
SEBI’s proposal aims to provide depositories greater flexibility in managing Investor Protection Fund-related administrative expenses while maintaining safeguards on the use of investor protection resources. The move is expected to improve consistency across market infrastructure institutions and support more efficient functioning of IPF mechanisms in India’s capital markets.