SEBI Revises Investor Protection Fund Utilisation Framework for Depositories

SEBI has revised the framework governing the utilisation of interest and income earned on the Investor Protection Fund (IPF) maintained by Depositories. The changes introduce greater operational flexibility while continuing to prioritise investor protection.

Revised Allocation of IPF Interest and Income

Under the earlier framework, Depositories were required to transfer the entire interest or income earned from IPF investments back into the IPF corpus.

Pursuant to the revised norms, Depositories must now credit at least 95% of the annual interest or income to the corpus. The remaining up to 5% may be utilised towards specified administrative expenses of the IPF Trust, including:

• Costs relating to dedicated personnel
• Statutory levies
• Audit fees
• Other regulatory expenses

Safeguards on Expenditure

SEBI has clarified that any expenditure exceeding the prescribed 5% threshold must be borne by the Depository itself.

Any unutilised portion of the permissible allocation must be transferred back to the IPF corpus at the end of the financial year.

Background and Regulatory Rationale

The revised framework has been introduced following:

• Industry representations
• Recommendations of the Secondary Market Advisory Committee (SMAC)
• Public consultation
• SEBI’s internal deliberations

The objective is to align the treatment of Investor Protection Funds maintained by Depositories with the framework already applicable to Stock Exchanges, thereby ensuring greater regulatory consistency across Market Infrastructure Institutions (MIIs).

Effective Date and Compliance Requirements

The revised provisions shall come into force on 1 September 2026.

Depositories have been directed to:

• Amend their bye-laws, rules, and operational processes wherever necessary
• Ensure appropriate dissemination of the revised framework among market participants

Why It Matters

The amendment provides limited administrative flexibility without diluting the primary objective of strengthening investor protection.

Depositories, compliance teams, and legal advisors should review internal governance mechanisms, budgeting processes, and trust administration arrangements to ensure readiness before the revised framework becomes operational.

Last Updated on 20 July, 2026