The Protection of Small Investors in Cases of Market Manipulation: Evaluating the Role of the Investor Protection Fund (IPF)

ABSTRACT

Investor protection is central to the integrity and trustworthiness of capital markets. While India’s Investor Protection Fund (IPF), managed by SEBI and individual stock exchanges, was designed to safeguard retail investors from broker defaults or fraudulent activities, its realworld impact has often been limited. The process is burdened by the requirement that a broker must first be officially declared a “defaulter” before investors can seek compensation. This condition not only delays justice but often leaves small investors helpless—struggling for redress in an unfamiliar and technical system. By contrast, the United States Securities and Exchange Commission (SEC) offers a more responsive and investor-centric model through its Fair Fund mechanism. Once a securities violation is established and penalties imposed, the SEC can proactively begin the process of compensating affected investors—without waiting for any formal declaration of default. This model, rooted in fairness and efficiency, includes independent oversight, transparent procedures, and often invites public participation in how funds are distributed.