Mutual Funds Shouldn’t Violate Advertisement Code By Promising Returns, Says Sebi 

Sebi asks mutual funds not to mislead customers by indirectly promising guaranteed returns. It has come to the regulator’s notice that some asset management companies are surreptitiously doing the same in their advertisements 
Mutual Funds Shouldn’t Violate Advertisement Code By Promising Returns, Says Sebi 

The Securities and Exchange Board of India (Sebi) has asked the mutual fund industry’s trade body to ask asset management companies (AMCs) to refrain from advertising guaranteed returns in their scheme documents or other advertisement material. 

Assuring returns on mutual funds is prohibited by the Sebi (Mutual Funds) Regulations, 1996, as all mutual funds invest in equity and debt markets, and so their net asset values (NAVs) are subject to market fluctuations. 

Sebi has also sent a letter to the Association of Mutual Funds of India (Amfi) reminding it to adhere to the advertisement code in Sebi MF regulations. Sebi wants Amfi to advise asset management companies (AMCs) in this regard.  

Sebi highlighted instances where some mutual funds have circulated pamphlets and brochures that misleads investors into thinking that they will receive a fixed return if they combine a systematic investment plan (SIP) with a systematic withdrawal plan (SWP). 

“Illustrations are provided in the advertisements, presentations, brochures, and/or pamphlets which would lead investors to believe that they will be receiving fixed returns for their investments, including that of SIPs by demonstrating SWP as a multiple of SIP,” Sebi said. 

An SWP is a facility for monthly withdrawals, while an SIP is a facility for regular investments. While SWP offers the option to receive regular returns, Sebi believes that the advertisements do not clearly convey that if the NAV of the scheme does not grow consistently, SWP may withdraw funds from the capital amount. 

One can only guarantee regular returns without withdrawing from the corpus amount (sum of systematic investments), on assumption that the value of the net assets continues to increase. Sebi, however, believes that such assumptions are written in small type or are deliberately made obscure. 

“Illustrations are shown depicting future returns on the basis of assumptions and projections. Disclaimers and assumptions are made in fine print that are likely to be missed out by the investors,” Sebi said. 

“In this regard you are hereby advised to communicate to all the AMCs to refrain from such practices in future, and to remove such advertisements, presentations, pamphlets and brochures from all the medium, and to advise their distributors not to use such advertisements, presentations, pamphlets and brochures,” Sebi added. 

Related Stories

No stories found.
Outlook Business & Money