Investor Protection Fund
Investor Protection Fund (IPF) was a fund maintained by stock exchanges in India to compensate investors who suffered financial losses due to the failure or default of a SEBI-registered trading member (broker), providing a defined level of compensation from exchange-administered resources where recovery from the defaulting member was insufficient.
The Investor Protection Fund was a central pillar of the investor safeguard architecture in India's securities market. Both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) maintained IPFs as required by SEBI regulations. The fund was built from multiple sources: a portion of listing fees, trading fees, penalties levied on members, fines collected from rule violations, and periodic contributions mandated by SEBI. The fund was distinct from the Settlement Guarantee Fund (SGF), which addressed settlement failures, and specifically targeted the scenario where a broker defaulted on obligations to its clients.
When a registered broker (trading member) was declared a defaulter by the exchange, clients who had outstanding claims against the defaulting broker — unpaid funds, unsettled securities, or securities misappropriated from the client's pool account — could file claims with the exchange's defaulter committee. The IPF was used to compensate eligible claimants after exhausting the recovery from the defaulter's assets, exchange margin deposits, and base capital contributions. SEBI regulations set the maximum compensation per investor claim at Rs 25 lakh (revised periodically).
The scope of IPF coverage was limited to losses arising from broker default and did not cover market losses (a client whose investment declined in value had no recourse to the IPF), losses from fraudulent investment schemes unconnected to exchange trading, or losses from brokers who were not SEBI-registered members. This distinction was important: investors who dealt with unauthorised or non-SEBI-registered entities — as in many investor fraud cases involving fake trading platforms or unregistered advisory schemes — had no IPF protection.
SEBI strengthened broker accountability and client asset protection frameworks significantly from 2020 onwards, reducing the instances where IPF claims would arise in the first place. The implementation of segregation of client funds from broker proprietary funds (via separate bank accounts and periodic reporting to exchanges), the margining framework reforms requiring upfront collection of margins from clients, and the demat pledge mechanism for margining securities all reduced the risk of broker misuse of client assets.
SEBI also established the Investor Education and Protection Fund (IEPF) under the Ministry of Corporate Affairs — a distinct fund that handled unclaimed dividends, matured fixed deposits, and unpaid redemption proceeds that companies transferred after seven years. The IEPF allowed claimants to recover such amounts through an online process. While both were named 'investor protection' funds, the exchange IPF and the IEPF served different purposes and operated under different authorities.