Listen to this article
Tightening the advertainment norms to reduce instances of mis-representation or mis-understanding by an investor, AMFI has issued a best practices circular in which it has clarified that AMCs cannot illustrate future return expectation of mutual funds on non-scheme related materials. AMFI said that no future returns can be shown even on illustration basis.
Non-scheme related materials are used to spread education and provide conceptual clarity. This includes the educational content used during investor awareness programs (IAPs).
However, fund houses are allowed to use illustration based on past performance of benchmarks. AMFI has asked AMCs to use return expectation in the range of 2%-13% to explain the concept of power of compounding through goal planning, SIP, STP and SWP. However, such an illustration cannot be scheme specific, clarified AMFI.
In a best practices circular, AMFI said, “It is clarified that AMCs may use tools such as goal planning, SIP, STP, SWP calculators, which permit investors to select the return from a range of returns starting from 2% to 13% for understanding the compounding effect, so long as such tools are not used to depict returns of any particular MF Scheme.”
The rationale for using 13% for equity funds is that the highest mean in respect of 10 years rolling returns between June 6, 2013 and May 30, 2023 of Nifty is 12.93%. Also, such an illustration has to use CAGR. These numbers will be reviewed annually.
Here is the table that AMFI has suggested to follow:
However, such an illustration should issue a disclaimer stating, “past performance may or may not be sustained in future and is not a guarantee of any future returns.”
Further, AMFI said that the font size used in depicting disclaimers in advertisements should be in line with the other sections of the advertisement material.
