IPFT Charges
What are IPFT Charges in stock market and how are they calculated?
The Investor Protection Fund Trust charges (IPFT charges) refer to a type of fees that is collected by the National Stock Exchange (NSE), in order to protect the interest of the traders. The collected funds are primarily used to compensate the traders, in case there is a default by the counter-party in fulfilling the obligations.
Although there are robust mechanisms for recovering the entire default amount from the party, but there can sometimes be a shortfall in the collected amount. So, the Investor Protection Fund acts like a safeguard, which can be used to cover the admitted claims.
The fee is levied as a percentage of the total trading turnover, and the charges are payable at both buy and sell time. The Stock Brokers are responsible for collecting this from the customers directly, and then depositing the amount with the Stock Exchange.
Investor Protection Fund
The main idea behind establishing an Investment Protection Fund at the Stock Exchange level is to have buffer funds. These could be used to minimize the losses for the investors, in case there is a default by the counter party.
Example: Suppose that Investor A sells stock to Investor B through the Stock Exchange. Investor B had to make a payment of INR 70,000, in order to receive the shares. However, Investor B fails to make the required payment.
Let us assume that after the Auction Process, only INR 69,000 can be recovered from the penalties on Investor B, and from the auction of shares in the open market. Now, Investor A was supposed to receive INR 70,000 through the sale of shares. But even though he/she is not at fault in this case, there would be a loss of INR 1,000 for Investor A.
To cover such kind of a shortage in this example, INR 1,000 could be withdrawn from the IPF, and be paid to Investor A. So, Investor A would receive the entire INR 70,000 that was owed to him/her. Besides the compensation, the IP fund is also used for facilitating investor education and awareness.
Investor Protection Fund Trust
The National Stock Exchange has setup a separate Trust, in order to administer the operations of this fund. This is known as the Investor Protection Fund Trust, or IPF Trust in short. The fund will compensate the shortfall in the claim made by the investors, up to a certain amount/limit.
This fund should not be confused with the Investor Protection and Education Fund (IPEF) of SEBI, or the Investor Education and Protection Fund (IEPF) that is run by the IEPF authority. These are two separate funds, with a totally different purpose and governance structure.
IPFT charges and Exchange Transaction Charges
Besides the IPF charges, the Stock exchange also levies an Exchange Transaction Fees from the traders. This fee is primarily collected in return for the trading facility that is being provided by the Stock Exchange.
As mentioned before, the Investor Protection charges are only applicable when trading on the National Stock Exchange. The IPFT fees might not be collected by other Stock Exchanges, as they might not provide a similar service. On the other hand, the Exchange Transaction Charges are a general concept, and this is usually applicable on trading through any Stock Exchange.
The charges for Investor Protection Fund Trust could be shown separately in the Contract Note, or it could be added to the Exchange Transaction Charges, and shown as a single fee.
When buying/selling on the exchange, the traders do not have to submit these charges separately. The Stock Brokers collect this fee from their clients at trade settlement time, and submit it to the Stock Exchange.
What are current IPFT charges?
In the below table, we give the details about the applicable IPFT charges that are defined by NSE. These will depend on the type of financial security, and the quantity that is being traded.
Note: The below-mentioned rates are for reference purpose, and they might not be the latest values. Please double-check the current charges with the Stock Broker or the Stock Exchange.
Type of security | Applicable IPF charges |
Equity (Intraday and Delivery) | 0.0001% (on Turnover), at buy and sell time |
Equity Futures | 0.0001% (on Turnover), at buy and sell time |
Equity Options | 0.0005% (on Premium value), at buy and sell time |
Currency Futures | 0.00005% (on Turnover), at buy and sell time |
Currency Options | 0.002% (on Premium value), at buy and sell time |
Taxes on IPFT charges
The Investor protection Fund Trust charges are a type of fees that is paid to the Stock Exchange. In return, the investors receive a certain level of safety against potential losses due to counter-party risk. This protection technically constitutes as a service that is being provided by the Stock Exchange.
For this reason, the Goods and Service Tax (GST) is applicable on the charges that are being paid by the client. The current rate of GST is 18% on the total fees amount, and the Stock Broker collects the tax from the traders, along with the fees.
Example: Suppose that the IPFT charges for a particular transaction is INR 10. So, the net amount payable by the investor will be INR 10 + INR 1.8 = INR 11.8.
Calculation of IPFT charges for investors
As explained in the above table, the IPFT fee is charged on both the buy and sell transactions. Let us look at a sample trade based on above rates, to understand how the total fees will be calculated for the trader.
Example: Suppose that a trader has done the following transactions:
Buys 1,000 shares at INR 40, at 10:00 AM
Sells 400 shares at INR 41, at 01:30 PM
Sells 600 shares at INR 38, 5 days later
So, through these transactions, the trader ended up doing an intraday trade for 400 shares. He/she also took delivery of 600 shares, which were sold 5 days later.
Computation of fees
The IPFT charges remain same for Intraday and Delivery trades. The amount to be paid will depend on the total turnover of each trade. So the calculations will look something like this:
Buy time (1,000 shares)
Turnover: 1,000 * 40 (Buy price) = INR 40,000
Applicable charges (at 0.0001%):
0.0001% of 40,000 = INR 0.04
Sell time – Intraday (400 shares)
Turnover: 400 * 41 (Sell price) = INR 16,400
Applicable charges (at 0.0001%):
0.0001% of 16,400 = INR 0.0164
Sell time – Delivery (600 shares)
Turnover: 600 * 38 (Sell price) = INR 22,800
Applicable tax (at 0.0001%):
0.0001% of 22,800 = INR 0.0228
So, the total IPFT Charges applicable on these transactions will be:
INR 0.04 + INR 0.0164 + INR 0.0228 = INR 0.0792
After adding 18% GST on the above amount, the total charges that are payable is:
INR 0.0792 + 0.0143 = INR 0.0935
Disclaimer
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