Essentially we are trying to simplify the code of advertisements so that it does not mislead the investor.
Advertisements of mutual funds which seems to create confusion in the mind of investors are likely to have a slight overhaul. Industry body, Association of Mutual Funds in India (Amfi) has approached market regulator, Securities and Exchange Board of India (Sebi) to simplify the current advertisement norms.
HN Sinor, CEO of Amfi said, “Right now we are working on the issue of simplifying advertisements for mutual funds and have made some recommendations to the regulator. We feel that, current norms are too complicated and it needs to be made clearer so that investors can take informed decisions. Essentially we are trying to simplify the code of advertisements so that it does not mislead the investor.” Amfi has proposed to the regulator that, issues like risk factors, performance of the scheme and point-to-point returns should be shown in some other manner.
In 2012, Sebi had asked all fund houses to comply with the new advertisements code, which asked for point-to-point returns on a standard investment of R10,000 to be shown in addition to compounded annual growth rate (CAGR). The new code also laid down that performance advertisement shall be provided from inception and for as many twelve month periods as possible for the last 3 years.
A CEO of a midsize fund house said, “There have been many difficulties in dealing with the current advertising norms. I don’t understand why so many disclosures were needed to sell a mutual fund. A new set of guidelines will come as a breather for the industry.”
Among other issues, Amfi might also bring in another two colour for product labelling which will be included in the application form to know the risk profile of that particular scheme. Currently, there are three colours to identify the risk associated with that scheme. “We would be adding two more categories to the product labeling which will be known as ‘principal with very high risks’ and ‘principle with very low risks’,” added Sinor.
In its circular in 2013, Sebi, had issued a framework on ‘product labeling’ with colour coding for mutual fund schemes, A blue colour code box would indicate low risk, yellow would signify a medium risk, while brown would represent schemes with high risk.