Watching your favourite television programme while relaxing on your favourite sofa, you may have come across several advertisements, which you might have found either annoying, fun or even dull and boring for that matter. While many of you getting irritable about them also opt to put their TV sets on the "mute" mode. But let us tell you, not all ads are boring and irritating. Some of them are really witty and put across the message very well. For instance, some of the insurance ads bring out well the pain and suffering a person goes through while awaiting an insurance claim; pension plan ads which touch your heart as they portray a responsibility and self-respect one can maintain even during one's retired life. Then there a lot of witty ads of various FMCG companies. Thus, many of these ads are good to see and make an impact on your minds.

But have you ever enjoyed a mutual fund ad which is more of often than not based on just facts and figures. Definitely not! Well, there are valid reasons for why the mutual fund ads are so boring and dull.

Since the 90's there has been a strict advertising code that the Securities and Exchange Board of India has had in place for mutual funds since it drafted its first set of mutual fund regulations in 1996. This original advertising code incorporated as many 19 rules dictating what a mutual fund may or may not display in its advertisements.

But of late realisation dawned upon the regulator (SEBI) and thus decided to replace this old advertising code with a brand new one, which essentially simplifies and relaxes many of these rules.The elaborate rules governing the content and format of mutual fund ads have been done away with. Instead, the new code merely specifies certain principles that mutual funds should not violate. However, ads still need to be truthful, fair and complete and must not mislead investors. Imposing slogans, celebrities and promises of bounty are still forbidden. But complicated and scary-sounding ‘risk factor' statements and disclaimers have been done away with. While rules on calculation of returns have been done away with, the performance or other data that a fund puts out must be standard across offer documents, a fund's website and other literature. These changes by the SEBI seem to be keeping with the times. Gone are the days (during the 90s) when Indian investors had practically no exposure to ‘market-linked' products, being used only to safe investments like bank deposits or term insurance from LIC. At that time, the stock and bond markets in which funds invested, and the surveillance and regulatory mechanisms governing them, were in the nascent stages too. This made it incumbent upon SEBI to intervene aggressively to protect first-time investors from tall product claims.

But, at present market-linked products are being heavily promoted, and considerable competition makes sure that only the best performers attract money. Retail investors, too are armed with multiple sources of information and tools to evaluate the fund, thus rendering unnecessary such an elaborate set of rules on mutual fund advertising. Impact of such an initiative on investors...
Though the SEBI has eased the advertising code for the mutual fund industry it has been framed keeping in mind the interest of the investors. The new mutual fund ads will not compromise on the fairness or completeness of facts and disclosures; thus will not be against the interests' of the investors.

 

Our view:

We believe that such an initiative by SEBI to relax stringent and out-dated advertising norms is in the best interest of the mutual fund industry as a whole. Moreover, maintaining the interests' of the investors at the same time by not diluting the disclosure norms and also maintain fairness in approach is a ‘win-win' situation for both the investors as well as mutual fund industry.

Also, we can look forward to see interesting ads from the mutual fund industry going forward. Moreover, the new norms would enable the mutual fund houses to save costs on their advertisements as the disclosures of the risk factors would be replaced by the disclaimer - "Mutual funds are subject to market risk. Please read the scheme-related offer documents carefully" which will occupy less space.

 

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