What is “Investor Protection Fund” of BSE and NSE?

What will happen to you when you will not receive securities you purchased or when you not receive payment towards your sale of securities from the Broker member of NSE or BSE, who is  declared as defaulter or expelled his membership?? To protect the investors from such untoward incidents, NSE and BSE have set up the fund called “Investor Protection Fund”. Now let us look at it’s features.

1) Collection of Fund-The members of stock exchanges at present contribute to this Fund Re.0.15 per Rs.1 lakh of gross turnover, which is debited to their general charges account. The Stock Exchange contributes on a quarterly basis 2.5% of the listing fees collected by it. Also the entire interest earned by the Exchange on 1% security deposit kept with it by the companies making public/rights issues is credited to the Fund. As per the SEBI directive, auction proceeds in certain cases, where price manipulation / rigging was suspected, have been impounded and transferred to the Fund. Also, the surplus lying in the account of the defaulters after meeting their liabilities on the Exchange is released to them after transferring 5% of the surplus amount to this Fund.

2) Current Compensation available-Presently the maximum compensation available for investor is Rs.10,00,000 but it will be reviewed as and when so desire. For example compensation was Rs. 5,000 in the year of 1988 but now it stands to Rs.10,00,000.

3) Management of Fund-The Investors’ Protection Fund as above shall be held in trust and shall vest in the Exchange or any other entity or authority, as may be specified by the Relevant Authority from time to time. The Investors’ Protection Fund shall be managed by the Trustees appointed under the Trust Deed created and executed and in accordance with the provisions contained in the Trust Deed and the Rules, Bye-laws and Regulations of the Exchange. Interest earned on such fund may be utilized fully or partly according to the discretion relevant authority for the purpose of imparting education or training to investors, for creating awareness among investing community or for any research connected with this.

4) How claims settled-The arbitration award obtained by investors against defaulters are scrutinized by the Defaulters Committee, a Standing Committee constituted by the Exchange, to ascertain their genuineness, etc. Once the Defaulter Committee is satisfied about genuineness of the claim, it recommends to the Trustees of the Fund for release of the award amount or Rs.10.00 lacs, whichever is lower. After the approval of the Trustees of the Fund, the amount is disbursed to the clients of the defaulters from the Investor Protection Fund.

5) Few important things about settlement of claims- A) Claim will be settled after producing the relevant proof of transactions like payment or delivery. Hence proof of document is a must.

B) But for orders or trades recorded on the ATS of the Exchange, may also be treated as the proof of transactions and for which no other proof presentation is required.

C) Claims are settled for actual loss which includes any difference receivable by the claimant arising out of the transactions. But you will not receive any amount for the damage, interest or notional losses.

D) Claim must be furnished in the prescribed form which is available at the time of claiming.

E) Where a claim is not considered for compensation, whether in part or in full, the Relevant Authority may cause a notice to be served on the concerned claimant, stating details for such disallowance.

These are few important features of this fund. Hope it may be useful for you.

16 Comments

  1. i was awarded by penal of arbitrators,but not satisfied by the award,i appealed u/s 34 of arbitration act in april 2013,now i hope to recieve order of court in my favor in two three months,bcz arguments are over in court .in the meanwhile broker against whom case was filed has become defaulter,membership suspended or cancelled after DHFL share crashed in sept 2018,now how i can claim my amount if order is in my favour,pl help

    Reply
  2. Case like F6 serve or any defaulting Broker, who runs away with Client’s funds and securities is there a upper limit on compensation to client ??

    If yes, then how does an HNI safeguard his / her holding / interest ???

    Also what are the safeguard being taken by EXCHANGES / DEPISITORY / SEBI in such type of cases ??

    Reply
    • Dear Ashit,
      Brokers act like middlemen to execute your orders. Such default risk arise when you trust the broker and hand over your money for the sake of quick returns. Never rely on anyone and track your investment and transactions regularly.

      Reply
  3. if the broker has sold my scrips fraudulently, AND HAS BEEN EXPELLED can the amount of sale proceed be claimed through IPF? if yes what value will be taken.? value on date of sale or value on date of claim.?

    Reply
    • Pawan-The amount has to be claimed from the broker itself. The amount should be value on sale.

      Reply
      • despite repeated requests , broker is not crediting scrips into my account. broker has been declared defaulter and has been expelled from NSE. applications are invited by NSE through newspapers. what action shall i take? pls advice.

        Reply
          • THE DP HAD SOLD MY SHARES FRAUDULENTLY. IF I LODGE MY CLAIM WITH NSE -IPF FOR MY MISSING SHARES, WHAT VALUATION METHODS ARE ADOPTED FOR CLAIM AMOUNT? SHARE VALUE ON THE DATE OF UNAUTHORIZED TRANSACTION OR THE VALUE ON DATE OF CLAIM?

            Reply
            • Dear Pawan,
              I am not an expert in this matter. Better to knock NSE in this regard.

              Reply
  4. NSE has set up investor protection fund as a trust or association ? pls reply

    Reply
  5. Thanks for the good article.Can you please share how long does it usually take for NSE to disperse the fund to the investor of its member bankruptcy situation ?

    Reply
    • Bavesh-I am not sure about the time frame. Also it is procedural matter. Hence may take time.

      Reply
  6. On doordarshan BSE has a system of paying 5 lakh as compensation to certain investors. Can you kindly illucidate? Regards, Kallol Das, Dy. Director, Ordnance Factories

    Reply
    • Kallol-I think it not is not separate but is from the Investor Protect Fund itself.

      Reply

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