Sebi asks depositories to credit 5 pc profit to investor fund

Markets regulator Sebi today asked the depositories to deposit 5 per cent of their annual profits, as also the fines collected by them from brokers and other entities, in an Investor Protection Fund (IPF) which can be used for investor education and awareness programmes.
Spelling out detailed guidelines for utilisation of IPF, its constitution and management, contribution to the Fund and its investments, Sebi also asked the depositories to frame their internal guidelines and submit the same for regulatory approval within 30 days.
Sebi's directive follows recommendations made by the Depository System Review Committee (DSRC) which had examined various aspects of the depository IPF, including utilisation and investment policy of IPF and quantum of funds to be transferred to IPF.

The Expert Committee on Clearing Corporations had also deliberated the issue with regard to quantum of funds to be transferred by the depositories to IPF.
There are two depositories in the country - NSDL and CDSL - which act like banks for securities and are basically custodians of demat accounts, which are required to hold shares and other securities or trade in them.
An investor needs to open a demat account through any depository participant, which can be a brokerage firm, for dematerialisation of his holdings and transferring securities.

Contribution to IPF will also be done from any interest or income received out of any investments made from the IPF and funds lying to the credit of IPR (Investor Protection Reserve) BOPF (Beneficial Owners Protection Fund) of the Depository, Sebi said in a circular.

As per the circular, funds of the IPF Trust will be invested in instruments such as government securities, fixed deposits of scheduled banks and any such instruments which are allowed as per the investment policy approved by the Board.
The investment policy will be devised with an objective of capital protection along with highest degree of safety and least market risk, the regulator said.
Besides, the IPF Trust shall consist of atleast one Public Interest Director (PID) of the depository, one person of eminence from an academic institution from the field of finance / an expert in the field of investor education / a representative from the registered investor associations recognised by Sebi and Managing Director of the Depository, Sebi added.

The Depositories will have to implement the provisions of this circular within three months.