Sebi likely to ease mutual fund advertising, promotion norms

Mumbai: India’s capital market regulator is planning to ease norms for mutual funds, making it easier for asset management companies (AMCs) to advertise, promote and sell their schemes.

The Securities and Exchange Board of India (Sebi) recently met officials from AMCs to discuss a proposal to make it optional for them to disclose past performance details of mutual fund schemes and the track record of fund managers in commercials and promotional campaigns, according to two people familiar with the developments.

The regulator may also ease current norms for AMCs regarding standard risk statements and the format of commercials, and remove certain restrictions on mutual fund branding activities, they said, declining to be named.

“Several existing restrictions and standard practices meant for advertisements by AMCs or their schemes are somewhat unnecessary and may be removed or relaxed,” said one of the two people cited above.

“The plan discussed in the meeting is aimed at enabling AMCs to save costs on advertisements, promotions and campaigns, and attract more customers, without compromising the interest of the investors at large,” the person added.

An email sent to Sebi did not elicit a response.

“The changes cannot be done without amending the mutual fund regulations. The final proposals may take two months and then be submitted to the board for formalizing. Once the board approves, the necessary amendments will be done in the norms,” the first person said.

“The proposals are particularly important as the profit margins of mutual funds are under pressure. There is scope for Sebi to remove certain restrictions from the existing norms, without compromising the transparency, so that AMCs are able to continue with their ads and promotional activities to attract more investors and are able to save on costs and improve margins at the same time,” said the second person.

Currently, there are 43 AMCs with average assets under management (AUM) worth Rs.12.17 trillion for the quarter ended 31 March, according to industry body Association of Mutual Funds in India.

According to Dhirendra Kumar, chief executive of mutual fund analytics firm Value Research Ltd, the measures being planned will be very helpful if implemented. “Commercials and promotions should be meant to encourage investors rather than to scare them off,” said Kumar.

Under the current norms, AMCs are required to disclose the track record of the concerned fund manager, the past performance of the schemes handled by the fund manager, the pattern of net asset values, the assets under management and a host of other details such as allocation strategies, expenses and so on. In addition, while airing advertisements on television, radio or any other electronic media, AMCs are required to run a standard disclaimer at the end of the commercial stating “Mutual fund investments are subject to market risks. Read all scheme related documents carefully before investing” for at least five seconds.

The two people cited above said Sebi is also looking at a proposal to relax this norm. The plan is to reword and tone down the disclaimer.

“By stating it upfront and reiterating time and again that mutual funds are risky, investors should be very careful and that they should not enter mutual funds unless they read every document a strange kind of fear is induced in investors’ minds and they are made to feel that they’d be better off putting money in fixed deposits of banks,” said the second person.

“This can be framed in a much better way so that the risks associated with market investments are implied without fending the investor off with fear. The mutual fund advisory committee of Sebi will discuss further on this in the next meeting,” the person said.

Also, Sebi is examining if AMCs need to run the disclaimer statement mandatorily for at least five seconds as they are required to at present.

“The standard disclaimer statement has made so much impact that often most of the people only remember this statement and nothing else that was promoted or advertised. Worse, some investors relate to the mutual fund industry through this disclaimer statement only,” said Kumar.

Mutual funds, in turn, should simplify their products, use simple nomenclature and explain investment objectives with the risks in simple language at the point of sale, Kumar said.

If the latest proposals are cleared, AMCs will not only be able to attract more investors, they will also be able to save costs on marketing and promotions through TV, radio, newspapers and other mediums.

According to the marketing head of a top AMC, many fund houses spend Rs.8-10 crore a month on advertisements, campaigns, branding and promotional activities to sell their schemes.

Separately, the regulator is also considering a proposal to allow AMCs to use celebrities to publicize their schemes, which is barred now, the first person said.