Sebi Floats Proposal On Using IPF Interest For Depository Expenses

Sebi’s initiative focuses on fine-tuning how depositories like NSDL and CDSL can utilize a fraction of the interest or income generated from their IPF corpus. Currently, depositories must plough back all IPF income, even as they bear rising operational costs to support investor protection and awareness activities.

Rationale Behind The Consultation Paper

Sebi notes that the existing framework allows stock exchanges to use a part of IPF interest for administrative expenses, while depositories have no such flexibility. The proposal seeks parity across market infrastructure institutions and aims to ensure that investor protection activities remain efficiently funded without diluting the core purpose of the IPF.

Proposed Utilization Framework

Under the draft framework, depositories may be allowed to use up to a small, capped percentage (in line with the 5 percent level proposed in recent reports) of annual interest or income from the IPF corpus to cover costs such as dedicated staff, audits, statutory charges, and regulatory compliances linked to IPF operations. Any unutilized portion at year-end would flow back into the IPF, preserving corpus strength for investor claims and education initiatives.

Implications For Investor Protection

The consultation paper reiterates that the primary use of IPF meeting genuine investor claims, offering interim relief, and funding investor education remains unchanged. Sebi emphasizes that enhanced operational support should translate into better governance, faster claim processing, and more robust investor awareness programmes across the securities market.

Key Highlights

• Sebi issues consultation paper on IPF interest utilization by depositories
• Proposal to permit limited use of IPF income for administrative and statutory expenses
• Alignment of depository framework with existing rules for stock exchanges
• Core objectives of IPF investor claims and education remain fully protected
• Public comments invited within the stipulated consultation window via Sebi channels

Sources: Sebi consultation paper, market reports, IPF guidelines for stock exchanges and depositories