SEBI now permits depositories to use up to 5% of annual Investor Protection Fund (IPF) income for operational costs starting this September. This change covers expenses like audit fees and dedicated staff salaries, while requiring the remaining 95% to stay within the fund to ensure investor protection.
The Securities and Exchange Board of India (SEBI) has introduced a shift in how depositories manage their Investor Protection Funds (IPF). Starting in September, these institutions are authorized to use up to 5% of the annual income generated by their IPF corpus to cover specific operational and administrative expenses.
This regulatory update addresses long-standing operational needs by allowing the use of IPF interest for costs such as audit fees, taxes, and statutory payments required by charity commissioners. Furthermore, the funds can now support the salaries of dedicated employees who manage these specific trusts.
Under the previous framework, the entirety of the income earned from IPF investments had to be reinvested directly into the fund. The new rules maintain a strong emphasis on the safety of the corpus, requiring that at least 95% of the annual income must still be reinvested. If a depository finds that its operational expenses for the trust remain below the 5% threshold, any unspent portion must be returned to the fund. Conversely, if expenses exceed this 5% limit, the depository is mandated to cover the extra costs from its own pocket rather than drawing further from the investor fund.
For investors, this change provides more clarity on how the administrative backend of capital markets is funded. Depositories have been directed by the regulator to update their internal policies and ensure that information regarding these financial adjustments is clearly communicated on their websites. This move helps balance the need for operational efficiency with the primary goal of protecting investor interests and maintaining the integrity of the market infrastructure.