What is an Investor Protection Fund (IPF) at Stock Exchanges?

Last Updated: 23 Oct 2025

Stock markets are an ever-changing place to make fortunes, but they also have their downsides. The great majority of risks are as a result of price volatility and impacts from the wider market, or losses due to traders one-sidedly entering transactions and falling in value, broker defaults, etc.

In order to protect the interests of investors under such circumstances, various regulatory authorities and exchanges have put into place certain provisions that act as a safety net for the players in the market. One such mechanism is the BSE Investor Protect Fund (IPF). It is a financial buffer meant to convey to investors that their money was not fully invested, even if the market intermediaries fail.

Let’s explore the details of this fund, including its purpose and how it can be advantageous to those who trade in the stock market.

What is IPF in the Stock Market?

The IPF is maintained by the stock exchanges, as per SEBI regulations. The primary goal is to ensure that investors are protected in the event a broker-dealer or exchange member firm fails and cannot meet its financial liabilities.

If an investor loses money because a broker fails to pay or deliver securities, the IPF steps in to provide limited compensation. The fund acts as a safeguard, building trust in the functioning of India’s capital markets.

Objectives of IPF

The IPF fund has multiple goals aimed at strengthening investor confidence and ensuring fairness in the market. Its objectives include:

• To compensate investors in cases where registered brokers default.
• To enhance confidence in stock exchanges by providing a safety net.
• To protect small and retail investors who are most vulnerable to financial loss.
• To maintain trust in India’s capital markets by ensuring investor-friendly mechanisms.
• To promote fairness and transparency in dealings between brokers and investors.
• To ensure investor education and awareness initiatives are funded through IPF allocations.

How IPF Works for Investors

The functioning of the BSE IPF is fairly straightforward but follows a structured process:

1. Default of Broker: When a broker registered with the stock exchange defaults in meeting settlement obligations, the exchange investigates the matter.
2. Assessment of Claims: Investors who have suffered losses because of this default can file claims with the exchange. These claims are reviewed to ensure they are genuine.
3. Compensation from IPF: After verification, the eligible claims are compensated from the IPF. But there is generally a cap on the amount of compensation per investor. For example, several Indian exchanges restrict compensation to ₹25 lakh per investor.
4. Investor Awareness Programs: In addition to compensation, the IPF is also used by exchanges to further investor awareness programs and financial literacy programs so that investors are more prudent and better informed in the future.

In this way, IPF provides some protection for investors in the event of intermediary default.

Eligibility to Claim from IPF

Not all claims are entertained under the IPF. To qualify for compensation, investors must meet specific conditions:

• The claim must arise due to the default of a registered stockbroker or trading member.
• The investor should have dealt with the broker through proper contracts or records.
• The claim must be filed within the stipulated time frame prescribed by the stock exchange.
• Only verified and genuine claims are eligible for compensation.
• Compensation is limited to the maximum amount defined by the respective stock exchange (e.g., up to ₹25 lakh per investor).

Key Benefits of the Investor Protection Fund and the Customer Protection Fund

The IPF and the CPF both play significant functions for investor protection. The main benefits include:

• Serves as a buffer against broker default.
• Generates confidence among investors in stock exchanges.
• Prompts greater involvement from individual investors.
• Encourages fair practices by discouraging brokerage abuse.
• Backs investors’ education and awareness initiatives.
• Decreases the psychological fear of losing money because of fraud.
• Improves the transparency of capital markets.

SEBI Guidelines on Investor Protection Funds

The establishment and functioning of IPFs are governed by SEBI regulations, ensuring uniformity and fairness across exchanges. Some of the key guidelines include:

• All stock exchanges must establish an Investor Protection Fund.
• A portion of penalties collected from brokers is transferred to the IPF.
• Compensation limits per investor are set by SEBI and exchanges.
• Funds can be used not only for compensation but also for investor awareness programs.
• Claims are processed only after due verification of investor records.
• Exchanges must maintain transparency in reporting the utilisation of IPF.
• Periodic audits and reports of the IPF are mandatory to ensure accountability.

IPFT Charges

Stock exchanges often levy Investor Protection Fund Trust (IPFT) charges on trades to contribute towards the fund. Below is a sample table that explains how these charges typically work:

Type of Trade	IPFT Charges (per crore of turnover)
Equity Delivery	₹10
Equity Intraday	₹10
Futures (Equity/Index)	₹10
Options (Equity/Index)	₹50 per crore of premium turnover

(Note: Charges may vary slightly depending on the stock exchange.)

These small contributions from trades collectively build the IPF corpus, which is later used to protect investors.

Conclusion

The Investor Protection Fund (IPF) acts as a safety net for investors, ensuring confidence and trust in the stock market. By compensating genuine losses caused by broker defaults, it protects small investors and strengthens market integrity, making the financial system more reliable and transparent.

Frequently Asked Questions

Q1. How much compensation can an investor get from the Investor Protection Fund?

The compensation amount is capped by the stock exchange, usually up to ₹25 lakh per investor. This limit ensures fair distribution of funds among affected investors.

Q2. Can an investor claim from IPF if they lose money due to market fluctuations?

No, IPF does not cover losses caused by market volatility. It only applies to cases of broker default or failure.

Q3. How is the Investor Protection Fund different from insurance?

IPF is not an insurance policy but a regulatory safeguard. It specifically addresses losses from broker defaults, unlike insurance, which covers a wider range of risks.

Q4. Who contributes to the Investor Protection Fund?

A portion of penalties collected from brokers, transaction charges, and contributions by exchanges goes into the IPF. Over time, these collections build a large corpus to support investors.

Q5. How can investors apply for compensation under IPF?

Investors must submit a claim application to the concerned stock exchange within the specified time limit. The exchange then verifies the claim and compensates eligible investors through IPF.