Fund houses are seeking some relaxation in advertising rules imposed by SEBI. Representatives of fund houses are said to have raised this issue several times in SEBI MF Advisory Committee meetings.
Over the years, SEBI has introduced many rules on mutual fund advertising.
While advertising scheme returns, AMCs have to show point to point returns on a standard investment of Rs. 10,000 in addition to CAGR returns (if the scheme has been in existence for more than 3 years). This was done to give a more complete standardized picture of fund performance.
Further, AMCs have to show the 12 month returns (as many 12 month period as possible) since inception for the last 3 years along with the benchmark returns.
“Mutual fund is the only product where you have to run a disclaimer. This connotes a negative image about mutual funds. Also, we have to put so much data about past performance of schemes. We need some clarity and uniformity pertaining to the rules on performance advertisements, says Arvind Sethi, Managing Director & Chief Executive Officer, Tata Mutual Fund.
To standardize the advertising rule for scheme returns, SEBI has mandated fund houses to show the scheme’s performance against a broad index like Sensex or Nifty (for equity schemes) and 10 year GOI security (for long term debt funds) and 1 year Treasury bill returns for short term debt funds.
The main issue which fund houses say is that disclosing the past performance of schemes in advertisements.
“We have to put a lot of data in print advertisements, especially when we are advertising scheme performance. It increases the data which a lay investor can’t comprehend. Also, the advertisements lose their creative value if so much data has to be disclosed. We have to do half page or full page advertisements in order to accommodate so much data,” said the marketing head of a bank sponsored fund house.
Marketing heads of fund houses say that advertising on television has become difficult ever since SEBI has come out with a rule to include past performance of schemes. While advertising the performance of a particular fund, AMCs have to also show the performance of all other schemes managed by the fund manager of that particular scheme. If the fund manager is managing more than six schemes, then AMCs have to mention the total number of schemes managed by the fund manager along with the performance data of three top and three bottom performing schemes.
“We will have to include two slides to show performance data on television. Further, we have to make the mandatory disclosure ‘Mutual funds are subject to market risk. Please read the offer…’ which puts the MF industry in a disadvantageous position. The insurance firms advertise ULIPs which also come with market risk but they are not required to make such a disclosure. Brokerage houses do not have to put such a disclaimer. This makes investors perceive mutual fund as a risky product. However, mutual funds are the comparatively safe for investors to participate in equities unlike direct equity,” adds the marketing head quoted above.
Suraj Kaeley, Group President, Sales & Marketing, UTI Mutual Fund believes that such stringent rules are meant to give a fair picture to investors. “We don’t think that the advertising rules are onerous. There are chances of investment products being wrongly advertised to lure investors. The data about the schemes past performance helps investors make an informed choice.”
In 2013, SEBI came out with another rule called scheme labelling. To depict the level of risk involved in mutual funds, AMCs are required to put color code boxes in all schemes according to the objective of the scheme.
Pankaj Mathpal from Optima Money says “It is a good decision of market regulator. However, the color coding will not tell the exact risk of the scheme but it will give opportunity to investors as well as advisors to discuss about relation between risk and returns.”
However, some distributors believe that such color coding is not required.
AMCs are supposed to put color codes in all their advertisement materials, front page of initial offering application forms, key information memorandum (KIM), scheme information documents (SIDs) and common application forms.
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