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What happens to the investments if a stockbroker becomes bankrupt?

The regulators have put in place strong measures to ensure the safety of both clients' holdings and funds if their stockbroker defaults.


In India, clients can hold securities electronically in one of two depositories - CDSL (WEB) or NSDL (WEB). The stockbroker indirectly maintains the securities as a depository participant (i.e. a member of CDSL or NSDL). If a stockbroker defaults, since the securities are kept safely with the depository, clients will be able to transfer their holdings to another stockbroker of their choice.


Funds, on the other hand, are held directly by stockbrokers on behalf of their clients. SEBI requires stockbrokers to hold client funds in a separate client pool account. The stockbroker can only use these funds for investments and trades made by their clients.

Like DICGC guarantees the safety of bank deposits for clients, if a bank defaults, the safety of funds lying with the stockbroker is guaranteed by the Investor Protection Fund (up to ₹ 25 lacs).

If a stockbroker defaults, clients can file a claim for their compensation anytime within three years. Clients can refer to this circular (WEB) from SEBI that details the eligibility criteria for such claims.

Clients can refer to these NSE (WEB) and BSE (WEB) pages to know how to claim compensation. NSE provides a maximum limit of ₹ 25 lakhs per investor per defaulter/expelled member regarding claims arising on expulsion/declaration of default of members. In comparison, BSE provides coverage up to ₹15 lakhs.

In addition to the above industry-wide measures, to find out how safe it is to trade with Zerodha, visit