MF New Ad Norms: Help to InvestorsBy Mr. Dhirendra Kumar, CEO, Value Research
Till now, mutual fund advertising in India has typically devoted a greater area to statutory warnings than cigarette advertising used to, or liquor advertising does in parts of the world where it's allowed. It isn't unusual as up to 40% of print advertising is devoted to warnings and disclosures of one kind or another.
Simplified regulations - Advertising..!
Now, finally, market regulator Sebi has rationalised and simplified the regulations pertaining to such advertising. And for once, when a regulatory organisation says rationalised, it's actually true. The bulk of the verbiage in existing fund advertising consists of various disclaimers & risk factors. For example, the leading disclaimer is that the reader of the advertisement is advised to take advice from an advisor because deciding on an investment might require professional advice. It generally goes on to say that there's no assurance or guarantee that the scheme's goals will be achieved. Then, it goes on to say that the ''Past performance of the schemes is neither an indicator nor a guarantee of future performance, and may not be considered for future investment decisions"
Affect Investor Behaviour..!This is all unexceptionable stuff, in a legalistic sense. Except that anyone who understands the basic psychology about how people take decisions that such warnings are unlikely to actually affect investor behaviour. If you need to be advised that you need might need advice from an advisor, then you are unlikely to heed that advice anyway.
SEBI's new code does it better. Firstly, it reduces the warning just to the brief ''Mutual fund investments are subject to market risks. Please read the offer document carefully" which is a big improvement from the earlier stuff.
Bans the use of Celebrities..!More importantly, the new code lays down the principles rather than micro-manage the language. It says the ads should be 'accurate, true, clear, complete, unambiguous and concise' that they should not contain statements 'which are biased or deceptive, based on assumption / projections and testimonials' or 'Slogans unrelated to nature and risk or return profile of the product'.
The new code also specifically bans the use of celebrities, something that is a sharp departure from what is allowed to insurance companies and banks.
The one part of the new regulations which goes down to details is the part that specifies how funds' performance and other financial data is to be specified. This part is important because the advertising of financial products is an important component of the integrity of the product. Unlike say, a house or a car or clothes, there is no physical object to examine and the entire decision making process is based on information alone.
As such, the standardisation and comparability, the core performance and returns data are crucial.
Another provision is that fund advertising must not include any ratings because such ratings are not strictly comparable.
About the author ..!
Mr. Dhirendra Kumar is CEO of valueresearchonline.com.
Till now, mutual fund advertising in India has typically devoted a greater area to statutory warnings than cigarette advertising used to, or liquor advertising does in parts of the world where it's allowed. It isn't unusual as up to 40% of print advertising is devoted to warnings and disclosures of one kind or another.
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| Dhirendra Kumar, CEO |
Now, finally, market regulator Sebi has rationalised and simplified the regulations pertaining to such advertising. And for once, when a regulatory organisation says rationalised, it's actually true. The bulk of the verbiage in existing fund advertising consists of various disclaimers & risk factors. For example, the leading disclaimer is that the reader of the advertisement is advised to take advice from an advisor because deciding on an investment might require professional advice. It generally goes on to say that there's no assurance or guarantee that the scheme's goals will be achieved. Then, it goes on to say that the ''Past performance of the schemes is neither an indicator nor a guarantee of future performance, and may not be considered for future investment decisions"
Affect Investor Behaviour..!This is all unexceptionable stuff, in a legalistic sense. Except that anyone who understands the basic psychology about how people take decisions that such warnings are unlikely to actually affect investor behaviour. If you need to be advised that you need might need advice from an advisor, then you are unlikely to heed that advice anyway.
SEBI's new code does it better. Firstly, it reduces the warning just to the brief ''Mutual fund investments are subject to market risks. Please read the offer document carefully" which is a big improvement from the earlier stuff.
Bans the use of Celebrities..!More importantly, the new code lays down the principles rather than micro-manage the language. It says the ads should be 'accurate, true, clear, complete, unambiguous and concise' that they should not contain statements 'which are biased or deceptive, based on assumption / projections and testimonials' or 'Slogans unrelated to nature and risk or return profile of the product'.
The new code also specifically bans the use of celebrities, something that is a sharp departure from what is allowed to insurance companies and banks.
The one part of the new regulations which goes down to details is the part that specifies how funds' performance and other financial data is to be specified. This part is important because the advertising of financial products is an important component of the integrity of the product. Unlike say, a house or a car or clothes, there is no physical object to examine and the entire decision making process is based on information alone.
As such, the standardisation and comparability, the core performance and returns data are crucial.
Another provision is that fund advertising must not include any ratings because such ratings are not strictly comparable.
About the author ..!
Mr. Dhirendra Kumar is CEO of valueresearchonline.com.
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