SEBI Allows Depositories To Use Up To 5% Of IPF Income For Administrative Costs

India's markets regulator has made a small but practically meaningful change to how depositories can manage their Investor Protection Funds (IPF).

In a circular issued on 08 July, the Securities and Exchange Board of India (SEBI) said depositories can now use up to 5% of the annual income generated from IPF investments to cover administrative and statutory expenses, instead of compulsorily returning every rupee to the corpus.

The previous rule required 100% of investment income to be ploughed back into the fund, leaving depositories with no internal mechanism to meet the day-to-day costs of running the IPF Trust itself.

What The 5% Can Cover

The permitted expenses under the revised framework include:

• Salaries of employees working exclusively on the Investor Protection Fund Trust

• Audit fees

• Applicable taxes

• Charity Commissioner fees

• Other administrative and statutory costs related to Trust operations

Two conditions apply to keep the usage disciplined. If actual expenses exceed the 5% limit, the excess must be absorbed by the depository from its own resources.

Any portion of the 5% that goes unused during the year must be transferred back to the IPF corpus at year end. The fund itself cannot be drawn down, only a slice of the income it earns is now available for operational costs.

Where The Funds Stand

As of 31 May 2026, the Investor Protection Fund at CDSL stood at around ₹116 crore, while NSDL's corpus was approximately ₹95.5 crore.

The income generated from investing these pools has historically been returned entirely to the fund, and 95% of it will continue to be.

Why SEBI Made The Change

The revision came after depositories represented to the regulator that the zero-flexibility framework created operational challenges. SEBI also noted the change brings depositories in line with the treatment already applicable to IPF maintained by stock exchanges, improving consistency across market infrastructure institutions.

IPF exists to compensate eligible investors in cases of defaults and other specified adverse events involving market intermediaries.

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