Document Title: Review of norms for utilization of interest or income from Investor Protection Fund (IPF) of Depositories
Issuing Authority: Securities and Exchange Board of India (SEBI)
Circular No.: HO/47/14/13(4)2026-MRD-POD3/I/15577/2026
Date: 07 July 2026
Effective Date: 01 September 2026
Executive Summary
This SEBI circular introduces a measured relaxation in the norms governing the utilization of interest or income generated from investments made out of the Investor Protection Fund (IPF) maintained by depositories. Previously, depositories were required to reinvest 100% of such interest or income back into the IPF corpus. The revised framework mandates that at least 95% of the annual interest or income must continue to be credited to the IPF corpus, while permitting up to 5% to be utilized for specified administrative and statutory expenses incurred by the IPF Trust.
The amendment seeks to harmonize the treatment of IPF funds across depositories and stock exchanges while ensuring that the corpus remains substantially protected.
Background
The existing provisions contained in the SEBI Master Circular for Depositories dated 03 December 2024 required that the entire interest or income earned from investments of the IPF be added back to the corpus. Representations from depositories highlighted practical challenges in meeting the operational expenses of the IPF Trust without access to any portion of the investment income.
Following deliberations by the Secondary Market Advisory Committee (SMAC), public consultation and internal review, SEBI has revised the framework.
Key Amendments
1. Revision in Contribution to IPF
The contribution requirements have been modified as follows:
- Earlier Requirement: 100% of the interest or income earned from IPF investments had to be transferred back to the corpus.
- Revised Requirement: A minimum of 95% of the annual interest or income shall be credited to the IPF corpus.
2. Permitted Utilization of the Remaining 5%
SEBI now permits depositories to utilize a maximum of 5% of the annual interest or income generated from IPF investments exclusively towards:
- salaries and expenses relating to dedicated employees of the IPF Trust;
- statutory audit fees;
- applicable taxes;
- Charity Commissioner fees;
- other legitimate administrative expenses of the IPF Trust.
If such expenses exceed the prescribed 5% limit, the excess must be borne by the depository itself. Furthermore, any unutilized portion of the permitted 5% during the financial year must also be credited back to the IPF corpus.
Regulatory Intent
The circular reflects a balanced regulatory approach aimed at:
- preserving the financial strength of the Investor Protection Fund;
- providing operational flexibility to IPF Trusts;
- establishing consistency between depositories and stock exchanges regarding IPF management;
- ensuring that investor protection remains the primary objective while facilitating efficient administration.
Practical Implications
For Depositories
Depositories will now be able to recover legitimate administrative costs directly from the investment income of the IPF instead of bearing these expenses entirely from their own resources, subject to the prescribed cap.
For IPF Trusts
The amendment provides a dedicated and predictable funding mechanism for routine operational and statutory expenditures without materially impacting the growth of the IPF corpus.
For Investors
There is no adverse impact on investor protection. Since at least 95% of the investment income continues to augment the IPF corpus, the financial strength of the fund remains substantially intact while improving its operational sustainability.
Compliance Requirements
Before the effective date, Market Infrastructure Institutions (MIIs) are required to:
- implement the necessary operational systems;
- amend applicable bye-laws, rules and regulations;
- disseminate the revised provisions to market participants and investors through their websites.
Effective Date
The revised framework shall come into force on 1 September 2026.
Professional Assessment
This circular represents a pragmatic refinement rather than a substantive policy shift. SEBI has retained the fundamental objective of safeguarding investor interests by ensuring that the overwhelming majority of investment income continues to strengthen the IPF corpus. Simultaneously, it acknowledges the operational realities faced by depositories and IPF Trusts by allowing a limited portion of investment income to fund essential administrative and statutory expenses.
The introduction of a capped utilization mechanism, coupled with the requirement that any excess expenditure be absorbed by the depository and any unutilized amount be returned to the corpus, demonstrates SEBI's emphasis on financial discipline, transparency and prudent governance.
Overall, the amendment is likely to improve the administrative efficiency of Investor Protection Funds while preserving their long-term financial resilience and maintaining robust investor protection standards.
