Archive / Investment Adviser (Level 1) / Grievance Redress Mechanism
nism-series-xa-investor-protection-fund-broker-default-claim[ INVESTMENT ADVISER (LEVEL 1) ]
Under SEBI regulations, what is the maximum claim compensation available to a retail investor from the 'Investor Protection Fund' (IPF) upon broker default?
[ A ]Up to ₹25 Lakhs per client from the NSE / BSE Investor Protection Fund, subject to IPF trust committee verification.[ CORRECT ]
[ B ]Zero compensation; investors lose 100% of capital with zero recourse.
[ C ]Compensation equals the current price of 100 kg of physical gold bullion.
[ D ]Up to ₹100 Crore per client.
Takeaway
On broker default, a retail investor can claim compensation from the exchange's Investor Protection Fund up to a maximum of ₹25 lakh per client, subject to verification by the IPF trust committee.
Derivation
NSE and BSE each maintain an Investor Protection Fund funded by contributions from trading members and the exchange, designed to give retail investors a partial safety net when a broker defaults or is declared a defaulter/expelled and cannot return client securities or funds. Claims are not paid automatically — they go through the exchange's Investor Grievance Redressal and Arbitration mechanism first, and only verified, adjudicated claims are paid out of the IPF, capped at ₹25 lakh per investor per defaulting member. The exam tests this because candidates often assume broker default means total, unlimited, or zero recourse — the reality is a defined statutory ceiling combined with a formal claims process.
Why the others fail
B — Zero compensation; investors lose 100% of capital with zero recourse.
IPF compensation exists precisely to give retail investors a statutory safety net after broker default — describing zero recourse ignores the exchange-maintained protection fund mechanism entirely.
C — Compensation equals the current price of 100 kg of physical gold bullion.
IPF payouts are cash compensation denominated in Indian Rupees processed through the exchange's claims mechanism, not settled in physical commodities like gold bullion.
D — Up to ₹100 Crore per client.
₹100 crore per client vastly exceeds the actual statutory IPF compensation ceiling of ₹25 lakh per client set by the exchange trust rules.
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