SEBI Investor Protection Fund
The Investor Protection Fund (IPF) at Indian stock exchanges is a corpus maintained by recognised exchanges under SEBI regulations to compensate investors in cases where a trading member defaults and fails to fulfil obligations toward clients, with the maximum compensation from exchange IPFs set at Rs 25 lakh per investor per defaulting member.
SEBI mandated the establishment of Investor Protection Funds at recognised stock exchanges under the SEBI (Stock Brokers) Regulations and related circulars. Every recognised stock exchange — NSE, BSE, MCX, NCDEX, and others — maintained a separate IPF funded through contributions from the exchange and from fines and penalties collected from trading members.
The IPF mechanism was distinct from the SEBI Investor Education and Protection Fund (IEPF), which was a Ministry of Corporate Affairs-administered corpus funded by unclaimed dividends, deposits, and other corporate amounts. The exchange-level IPF dealt specifically with trading member defaults, not corporate defaults.
When a stock broker or trading member was declared a defaulter by the exchange — typically after failing to meet settlement obligations to clients — investors who had net claims against that defaulter could file for compensation from the exchange IPF. The claim had to be submitted within a specified period of the default declaration, typically three years, and required documentary evidence of the outstanding balance in the form of ledger statements, contract notes, and correspondence.
The compensation limit per investor per defaulting trading member was Rs 25 lakh across cash and derivatives segments combined, as per SEBI circular SEBI/HO/MIRSD/DOP/P/CIR/2023 and predecessor circulars. This limit applied regardless of the total claim amount. Investors with claims exceeding Rs 25 lakh received the cap and could pursue the remainder through legal channels against the defaulter's estate in insolvency proceedings.
NSE and BSE had historically maintained healthy IPF balances. NSE's IPF corpus was in the range of several hundred crore rupees at various points, funded primarily through interest income on the corpus and contributions from penalties. The IPF was invested conservatively in government securities and fixed deposits.
From an investor protection design standpoint, the IPF provided a limited but meaningful first line of defence against broker defaults for retail investors. It did not cover losses arising from market risk, bad investment decisions, or fraud by company promoters — only broker-level default risk. SEBI's 2023 guidelines on segregation of client securities and funds were complementary measures aimed at reducing the probability of broker defaults impacting client assets.