The Securities and Exchange Board of India (SEBI) has relaxed norms governing how depositories utilise income earned from their Investor Protection Fund (IPF), allowing them to deploy a small portion of the annual income to cover administrative and statutory expenses.
The capital markets regulator mandated that at least 95 per cent of the interest or income generated each year from investments made out of the IPF must be added back into the fund. The remaining chunk, capped strictly at 5 per cent, can now be utilised to meet expenses directly linked to the fund’s daily operations.
The new norms are scheduled to come into effect from September 1, 2026.
This policy change modifies the earlier rule under SEBI’s master circular for depositories, which strictly required 100 per cent of the interest or income earned from the Investor Protection Fund to be credited directly back into the fund corpus.
SEBI noted that it reviewed the existing rule after receiving formal representations from depositories, alongside an objective to bring regulatory parity between the operational rules for depositories and stock exchanges.
The initial proposal was thoroughly discussed by SEBI’s Secondary Market Advisory Committee. The final decision was subsequently taken after considering in the advisory panel’s recommendations, feedback received through public consultations, and extensive internal deliberations.
Under the newly revised framework, depositories are permitted to use up to 5 per cent of the annual interest or income from the fund’s investments to pay for expenses related to dedicated personnel of the Investor Protection Fund Trust.
Furthermore, the amount can be used to settle administrative and statutory expenses, including applicable taxes, audit fees, and charity commissioner’s fees.
To prevent misuse, SEBI has added strict safeguards. If operational expenses exceed the set 5 per cent threshold, the additional cost must be entirely borne by the depository itself. Additionally, if the permitted operational amount remains unutilised within the same financial year, it must be rolled back into the core Investor Protection Fund corpus.
The Investor Protection Fund is maintained by market infrastructure institutions (MIIs) to safeguard investor interests and financially support investor-centric awareness activities.
This latest regulatory amendment gives depositories limited financial flexibility to manage the operational overheads cost of running the fund, while simultaneously ensuring that the vast majority of the income continues to strengthen the primary corpus.
Moving forward, SEBI has directed market infrastructure institutions to immediately set up the necessary systems for seamless implementation. They have also been asked to make changes relevant bye-laws, rules, and internal regulations where applicable.
Depositories are required to bring the circular to the attention of market participants, including retail investors, and publish it on their official websites.
