Investor Protection Fund (IPF)

A safety net behind your broker

When you trade, you trust your broker with your money and securities. But brokers can collapse, as several have, leaving clients exposed. The Investor Protection Fund (IPF) is the cushion. Maintained by each stock exchange under SEBI rules, it compensates investors whose legitimate, non-speculative claims cannot be met because a broker has been declared a defaulter or expelled.

Every major exchange runs one: the NSE, BSE, MCX and NCDEX each maintain an IPF trust, funded partly from a slice of transaction charges, interest and fines.

How much is covered

There is a per-investor ceiling on claims. The NSE raised its maximum compensation to ₹35 lakh per investor per defaulting member (up from ₹25 lakh) for defaults declared after 13 August 2024. Other exchanges set their own limits in consultation with their IPF trusts.

The fund covers genuine claims, money or securities you were owed, but not market losses or speculative dealings. If your stock simply fell in value, the IPF offers nothing; it exists for broker failure, not bad trades.

Why it matters and what it does not cover

The Karvy scandal, where a broker misused client securities, sharpened focus on investor protection and pushed reforms. SEBI has since tightened the system far beyond the IPF, with measures like the ASBA-like blocking of funds (UPI) for the secondary market and rules separating client money from broker money, so that the IPF becomes a last resort rather than the first line of defence.

For investors, the practical takeaways are clear. Trade only with SEBI-registered brokers, keep your securities in your own demat account, and periodically verify holdings via CDSL/NSDL statements. The IPF is real protection if a broker fails, but it is capped, slow and reserved for genuine defaults, so prevention through good broker choice and direct holding of securities remains your strongest safeguard.