New Regulations for Depositories

The Securities and Exchange Board of India (SEBI) has updated its regulations to allow depositories to use up to 5% of the annual interest or income from their Investor Protection Fund (IPF) for administrative and statutory costs. This change contrasts with the previous mandate that required all income to be reinvested into the fund corpus.

Under the revised guidelines, at least 95% of the income generated from IPF investments must still be reinvested into the fund annually. The amount that can be allocated for administrative purposes includes expenses related to dedicated IPF trust employees, audit fees, taxes, and fees for charity commissioners, among other operational costs.

Current Status of the Investor Protection Funds

As of May 31, depositories CDSL and NSDL reported a combined total exceeding Rs 211 crore in investor protection funds. Specifically, CDSL’s portion of the IPF stands at Rs 115.94 crore, while NSDL maintains an IPF corpus of Rs 95.53 crore.

Rationale Behind the Regulatory Change

SEBI indicated that this regulatory adjustment was made in response to requests from depositories and was discussed within its Secondary Market Advisory Committee. The objective is to create consistency in how IPF income is managed across different depositories and stock exchanges.

The regulator further clarified that should the administrative expenses exceed the allowable 5% allocation, the excess must be covered by the depository itself. Additionally, any unspent portion of the 5% allocation must be redirected back into the IPF corpus during the same financial year.

Implementation Timeline and Compliance

The new regulatory framework is set to be implemented starting September 1, 2026. Depositories are required to adopt necessary measures and update relevant by-laws, rules, and regulations to align with these revised requirements.

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