SEBI Proposes 5% Window: How Depositories Can Utilize IPF Corpus Income for Operational Needs

SEBI Proposes 5% Window: How Depositories Can Utilize IPF Corpus Income for Operational Needs​

The Securities and Exchange Board of India (SEBI) has initiated a significant consultative process regarding the utilization of income generated from the Investor Protection Fund (IPF) Corpus of depositories. The consultation paper, released on May 11, 2026, seeks public input on aligning the financial flexibility of depositories with that of stock exchanges.

The core proposal aims to permit depositories to utilize a defined portion of their annual IPF interest or income to cover critical administrative and operational expenses. This move represents a potential paradigm shift in how these vital market funds are managed and deployed.

Overview of the IPF Corpus Utilization Review​

The objective of the consultation paper is clear: to allow depositories to use a limited share of their IPF earnings. This income can be allocated toward meeting expenses related to dedicated IPF Trust employees. It also covers essential administrative and statutory costs, including applicable taxes, audit fees, and charity commissioner's fees.

Currently, the utilization rules differ substantially between the two major market intermediaries. This discrepancy has prompted the SEBI to review the existing norms and propose a harmonization of practices.

Current Operational Gaps in Depository IPF Utilization​

As per existing provisions, stock exchanges are already permitted to utilize up to 5% of the IPF interest or income for defined expenditures. These funds are used for employee expenses, administering Investor Service Centres (ISCs), and statutory compliance.

However, the current system presents a major gap for depositories. Presently, 100% of the interest or income from a depository's IPF is mandated to be treated as the corpus. All necessary operational expenses, even those directly related to the IPF Trust, must be funded by the depository’s own operational income.

The Proposed Framework: Aligning Utilization Limits​

After detailed deliberations in the Secondary Market Advisory Committee (SMAC), the Committee agreed to recommending an alignment of the rules. The proposal seeks to mirror the stock exchange framework for depositories.

The core proposal suggests allowing the depository to utilize a maximum of 5% of the annual interest or income generated from the IPF investments. These funds can cover the necessary expenses related to the dedicated employees and administrative costs.

Crucially, the proposal includes guardrails. Should the operational expenses exceed this 5% cap, the excess amount must be borne entirely by the depository. Furthermore, any portion of the utilized income that remains unutilized in the same financial year must be promptly ploughed back into the IPF corpus.

Immediate Financial Snapshot of Depository IPF Funds​

The sheer scale of the funds under consideration underscores the importance of this policy review. As of March 31, 2026, the total IPF corpus held by the two major depositories was substantial.

The corpus for NSDL stood at ₹87.78 Cr. Meanwhile, CDSL reported a corpus totaling ₹95.18 Cr. These figures represent the principal amounts protected within the Investor Protection Fund.

Industry Watch: Public Comment Deadline and Implications​

The consultation paper formally invites public comments on this proposed utilization review. Industry stakeholders are urged to review the document and provide suggestions regarding the proposed 5% utilization limit.

The window for submitting comments is narrow, concluding on June 01, 2026. While physical submissions are encouraged, the SEBI has also provided dedicated email addresses for submitting technical comments or suggestions.

This review is set to rationalize the operational spending mechanism for India's two primary market depositories, potentially improving financial management and efficiency within the securities market infrastructure.