Investor Services Fund
Also written ISF · Investor Services Fund (ISF)
A fund at each stock exchange, built from at least 20% of listing fees and overseen by the Regulatory Oversight Committee, used solely for investor education and awareness programmes.
In plain language
Compensating investors after something goes wrong is only half the job. Stopping them from being caught out in the first place matters too, and that takes money spent on education, not compensation.
The Investor Protection Fund pays claims. The Investor Services Fund is different: it exists purely to teach investors, through seminars, publications and training, so fewer of them end up needing the other fund at all.
How it works
The workbook (Chapter 7, section 7.4.1, Investor Services Fund of Stock Exchanges) sets out three things about the ISF:
- Funding. The stock exchange must set aside at least 20% of listing fees received for the ISF.
- Oversight. Supervision of the ISF's contributions and utilisation rests with the Regulatory Oversight Committee, for better management and control of the corpus.
- Use. The ISF can be used only for promotion of investor education and investor awareness programmes — through seminars, lectures, workshops, publications (print and electronic media) and training programmes — aimed at enhancing securities market literacy and promoting retail participation.
This sits right next to the Investor Protection Fund in the workbook, which draws 1% of listing fees and up to 25% of its own investment income for the same broad purpose of investor education, but whose main job is compensating clients of a defaulting broker. Two funds, both partly listing-fee-funded, with different percentages and different primary purposes.
A worked example
A stock exchange collects Rs 40 crore in listing fees in a financial year.
ISF contribution = 20% x Rs 40 crore = Rs 8 crore (minimum)
The exchange, under the oversight of its Regulatory Oversight Committee, uses this Rs 8 crore corpus to run a series of investor awareness workshops across smaller towns, publish an investor education booklet in six regional languages, and fund a training programme for first-time demat account holders.
By contrast, the same exchange's Investor Protection Fund gets only 1% of the same Rs 40 crore listing fees (Rs 40 lakh), because the IPF's job is different — compensating clients of a defaulting broker — and only up to 25% of the IPF's own investment income may additionally go toward investor education, layered on top of the ISF's dedicated 20% listing-fee stream.
Why NISM asks about it
Chapter 7 (section 7.4.1) places the ISF immediately after the Investor Protection Fund, and the two are natural exam companions precisely because they share a funding source (listing fees) but differ in percentage and purpose. Expect a question asking which fund a given listing-fee percentage belongs to, or what the ISF corpus may be used for.
Common exam traps
- ISF gets at least 20% of listing fees; IPF gets 1% of listing fees. Confusing the two percentages is the standard error.
- ISF money can be used ONLY for investor education and awareness — it cannot pay investor compensation claims, which is the IPF's job.
- The Regulatory Oversight Committee supervises the ISF, giving it a different governance line from the IPF, which is administered through its own trust.
- Do not assume ISF and IPF are the same fund under two names — they are separate funds, sitting side by side in the same section of the workbook, funded differently and spent differently.
Check yourself
1.Which statement about a stock exchange's Investor Services Fund (ISF) is correct?
- a)Its supervision rests with the Regulatory Oversight Committee, and it can be used only for promotion of investor education and investor awareness programmes
- b)It compensates clients of defaulting trading members
- c)It is funded by 1% of the listing fees
- d)It is administered by the IPF Trust and may pay interim relief to investors
Show the answer
Answer: (a) Its supervision rests with the Regulatory Oversight Committee, and it can be used only for promotion of investor education and investor awareness programmes
The workbook: “The stock exchange shall set aside at least 20% of the listing fees received for ISF for providing services to the investing public. In order to have better management and control on the contributions and utilization of ISF corpus, supervision of the same will rest with the Regulatory Oversight Committee. ISF can be utilized only for promotion of investor education and investor awareness programs through seminars, lectures, workshops, publications (print and electronic media), training programs etc. aimed at enhancing securities market literacy and promoting retail participation in securities market.”
Why the others are wrong:
- Compensates defaulters’ clients — that is the IPF.
- 1% of listing fees — 1% goes to the IPF; the ISF gets at least 20%.
- IPF Trust, interim relief — interim relief is paid from the IPF; the ISF is supervised by the Regulatory Oversight Committee.
2.What proportion of listing fees is set aside for the Investor Protection Fund and the Investor Services Fund respectively?
- a)20% for IPF and 1% for ISF
- b)1% for IPF and at least 20% for ISF
- c)1% for both
- d)10% for IPF and 10% for ISF
Show the answer
Answer: (b) 1% for IPF and at least 20% for ISF
IPF: 1% of the listing fees received, on a quarterly basis.
ISF: the stock exchange shall set aside at least 20% of the listing fees received for ISF for providing services to the investing public.
Option A reverses them, which is the trap.
The IPF has many other sources beyond listing fees, which is why its listing-fee share is small: 100% of the interest earned on the 1% security deposit kept by the issuer companies · penalty collected from TMs for deficiency in modification of client code · penalty for default in pay-in during periodic call auction for illiquid scrips · penalties collected from listed companies for non-compliance with the LODR Regulations 2015 · penalty for default in pay-in by an investor in an OFS transaction — 10% of the order value · contribution based on transaction charges · at least 70% of interest or income received out of any investments made from the IPF.
Their purposes differ completely. The IPF meets the legitimate investment claims of the clients of the defaulting TMs; the ISF can be utilized only for promotion of investor education and investor awareness programs through seminars, lectures, workshops, publications and training programs.
And their supervision differs: the IPF shall be administered by way of a Trust, while for the ISF supervision of the same will rest with the Regulatory Oversight Committee.
3.Under SCORES 2.0, who conducts the first review if the investor is dissatisfied with the entity's resolution?
- a)SEBI
- b)The Designated Body — for a stock broker, the Stock Exchange
- c)The ODR Institution
- d)The Member Committee
Show the answer
Answer: (b) The Designated Body — for a stock broker, the Stock Exchange
Providing two levels review system: First review by the "Designated Body" if the investor is dissatisfied with the resolution provided by the concerned regulated entity. Second review by SEBI if the investor is still dissatisfied after the first review.
And who the Designated Body is: the Designated Body (for Stock broker, Stock Exchange is Designated Body) shall ensure that the concerned Entity submits the ATRs within the stipulated time of 21 calendar days.
The first review process: the Designated Body may seek clarification on the ATR submitted by the Entity for the first review. The Designated Body shall stipulate the timeline in such a manner to ensure that the Designated Body submits the revised ATR to the complainant on SCORES within 10 calendar days of the review sought.
When SEBI comes in: in case the complainant is not satisfied with the ATR provided by the Designated Body or the concerned Designated Body has not submitted the ATR within 10 calendar days, SEBI may take cognizance of the Complaint for second review through SCORES.
And SEBI must close it explicitly: the second review Complaint shall be treated as "resolved" or "disposed" or "closed" only when SEBI "disposes" or "closes" the Complaint in SCORES.
Where this is taught
Free preparation for NISM Series VIIRelated terms
- Investor Protection FundA trust-administered fund at every stock exchange and depository that compensates clients of a trading member who has been declared a defaulter or expelled, up to a per-investor limit the exchange fixes.
- Member CommitteeThe body that sanctions and ratifies an investor's claim against a defaulting trading member before the Investor Protection Fund Trust disburses compensation.