The Securities and Exchange Board of India (SEBI) has introduced a new framework allowing depositories to utilize up to 5% of annual interest or income earned from the Investor Protection Fund (IPF) corpus for operational expenses. According to reports from The Hindu BusinessLine, The Economic Times, ET Now, and NDTV Profit, this policy change takes effect from September 1, 2026 and represents a significant shift from the previous approach where all IPF income was reinvested into the corpus. The revised framework modifies the earlier rule under SEBI's master circular for depositories, which required 100% of the interest or income earned from the Investor Protection Fund to be treated as part of 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.
Under the revised framework, depositories can utilize IPF income for specific operational costs including dedicated employee expenses of respective IPF trusts, administrative and statutory costs such as taxes, audit fees and charity commissioner fees. As reported by The Economic Times, ET Now, and NDTV Profit, the amount can also be used for administrative and statutory expenses such as applicable taxes, audit fees and charity commissioner's fees. The new norms specifically permit depositories to use up to 5% 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. SEBI has specified that any expenses exceeding the 5% limit must be borne entirely by the depository, while unutilized amounts in the same financial year must be reinvested back into the IPF corpus. The remaining 95% of annual interest or income generated from IPF investments must continue to be credited back to the fund.
As of May 31, depositories CDSL and NSDL together held more than ₹211 crore in investor protection funds, with CDSL's IPF corpus standing at ₹115.94 crore and NSDL's at ₹95.53 crore. According to NDTV Profit, these substantial fund holdings provide a significant financial foundation for the new operational expense framework. The revised norms will allow these institutions to utilize a portion of their substantial IPF reserves for administrative costs while maintaining the majority of funds for corpus strengthening.
SEBI has mandated that depositories establish necessary systems for implementation and make appropriate amendments to their bye-laws, rules and regulations. As reported by The Economic Times, ET Now, and NDTV Profit, SEBI has directed market infrastructure institutions to put in place the necessary systems for implementation and make changes to relevant bye-laws, rules and internal regulations wherever required. Depositories must bring the revised provisions to the notice of market participants, including investors, while also publishing the new provisions on their websites. This comprehensive approach ensures transparency and proper implementation across all depositories operating under the new framework. The initial proposal was thoroughly discussed by SEBI's Secondary Market Advisory Committee, with the final decision taken after considering the panel's recommendations, feedback received through public consultations, and extensive internal deliberations.
