SEBI Revises Rules for Use of Investor Protection Fund (IPF) Income by Depositories, Explained!!
The Securities and Exchange Board of India (SEBI) has issued a new circular revising the rules for the use of interest or income earned from the Investor Protection Fund (IPF) maintained by depositories. The new rules have been introduced to bring uniformity between depositories and stock exchanges regarding the use of IPF income. The revised provisions will come into effect from 1 September 2026.
What is the Investor Protection Fund (IPF)?
The Investor Protection Fund (IPF) is a fund maintained by depositories to protect the interests of investors. The fund is created from contributions made by depositories and is invested. These investments generate interest or income every year. SEBI has now clarified how this income can be used.
What Was the Earlier Rule?
Earlier, SEBI required that 100% of the interest or income earned from investments made using the Investor Protection Fund had to be added back to the IPF. This meant that none of the income could be used for administrative or operational expenses, and the entire amount had to remain in the fund to increase its size.
What Has Changed?
SEBI has now relaxed this rule. Under the revised guidelines, at least 95% of the interest or income earned from IPF investments every year must continue to be added back to the Investor Protection Fund. However, up to 5% of the annual interest or income can now be used to meet certain administrative and statutory expenses related to the management of the IPF.
What Expenses Can Be Paid Using the 5% Amount?
The circular allows depositories to use a maximum of 5% of the annual interest or income earned from IPF investments to meet expenses such as salaries of employees working exclusively for the IPF Trust, audit fees, applicable taxes, Charity Commissioner’s fees and other administrative or statutory expenses incurred during the financial year.
Who Will Bear Additional Expenses?
SEBI has made it clear that if the administrative or statutory expenses exceed the permitted 5% limit, the additional amount must be paid by the depository itself. The excess cost cannot be charged to the Investor Protection Fund.
What Happens If the 5% Is Not Used?
If the depository does not use the permitted 5% amount during the financial year, the unused amount cannot be retained separately. It must be added back to the Investor Protection Fund, thereby increasing the corpus of the fund.
Why Did SEBI Make This Change?
According to SEBI, the change was made after receiving representations from depositories. The proposal was discussed by the Secondary Market Advisory Committee (SMAC), followed by public consultation and internal discussions. The objective is to bring consistency in the rules governing the use of IPF income across both depositories and stock exchanges.
When Will the New Rules Come Into Effect?
The revised rules will become effective from 1 September 2026. Depositories have been directed to make the necessary system changes, amend their bye-laws and regulations wherever required, and inform market participants and investors about the revised provisions through their websites.
What Does This Mean?
The circular gives depositories limited flexibility to use a small portion of the income earned from the Investor Protection Fund for managing the fund efficiently. At the same time, SEBI has ensured that at least 95% of the income continues to remain in the Investor Protection Fund, so that the fund keeps growing and remains available to protect investors’ interests.
Click here to download SEBI circular on Use of Investor Protection Fund (IPF) Income by Depositories
