Sebi Asks Mutual Funds To Stop Ads That Depict Returns To Investors: Report

AMFI has been told to ask fund houses to remove promotional material such as advertisements, illustrations, pamphlets, and brochures that make claims on returns

In a bid to stop mutual funds mislead investors on returns, the Securities and Exchange Board of India (Sebi) has asked them to stop all advertisements or illustrations showing future returns.

In its direction through a letter dated March 3, the industry body Association of Mutual Funds of India (AMFI) has been told to ask fund houses to refrain from this practice and remove promotional material such as advertisements, illustrations, pamphlets, and brochures that make these claims, reported publication the Economic Times.

Meanwhile, a separate communication from AMFI on March 5, said it has noticed that illustrations from mutual funds have depicted future returns on the basis of assumptions and projections.

"Illustrations are provided in the advertisements/presentations/brochures/pamphlets which would lead investors to believe they will be receiving fixed returns for their investments including that of SIPs (Systematic Investment Plans) by demonstrating SWP (Systematic Withdrawal Plans) as a multiple of SIP," said the industry body.

"Disclaimers and assumptions are made in fine print that are likely to be missed out by investors."

Aiming sales, the body said various asset managers embed catchy illustrations that projected returns on their monthly SIP investments for 20 years. It further stated that once a corpus was created after 20 years, investors wanting regular income could withdraw their investments regularly through the SWP route. The illustration also showed that despite the withdrawal, the capital is protected and even grows.

AMFI noted that such advertisements are ambiguous and likely to be misunderstood by investors. It clearly warned that such information is not in compliance with the letter and spirit of the Sebi regulations.

Mutual funds have also been asked to place a copy of this communication before the board of directors of their asset management companies and the trustees.

Earlier, Sebi had recently permitted fund houses an additional expense ratio of 30 bps on new inflows (up to Rs 2 lakh) from retail investors for incentivising mutual funds garnering funds from B-30 cities.