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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Investor Grievances and Arbitration

Which of the following best describes the purpose of the Investor Protection Fund (IPF) maintained by a stock exchange?

The Investor Protection Fund compensates genuine clients of a defaulter or expelled trading member, up to prescribed limits, and supports investor awareness and education activities. It is not a profit guarantee or a source of money for brokers or exchange expenses.

  1. ATo compensate clients of a defaulter or expelled trading member up to specified limits, and to promote investor educationCorrect
  2. BTo fund the brokerage income of trading members during market downturns
  3. CTo pay the exchange's staff salaries
  4. DTo guarantee profits on investors' trades

Explanation

The IPF is built from exchange contributions and penalties and is used for investor education and for compensating genuine investors whose broker is declared defaulter, subject to limits. It does not guarantee profits or fund broker income or exchange salaries.

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