CHIEF GENERAL MANAGER
MUTUAL FUNDS DEPARTMENT
SEBI/MFD/CIR No. 6 / 12357 /03
June 26, 2003
All Mutual Funds registered with SEBI
Association of Mutual Funds in India (AMFI)
Dear Sirs,
Advertisements by Mutual Funds
As you are aware, SEBI had earlier issued a set of guidelines on the captioned subject vide Circular No. MFD/CIR/4/51/2000 dated June 05, 2000.
With an objective to improve the standard of disclosures in advertisements, effective implementation of regulatory intent and to remove difficulties in the application of Regulations, the following guidelines are being issued after consultation with AMFI, in accordance with Regulation 77 of the SEBI (Mutual Funds) Regulations, 1996.
1. Advertisements through Hoardings / Posters
It is essential for the investors to read the offer documents and risk factors before investing in mutual funds schemes to take well informed investment decisions. Considering that the investors get very little time to read the advertisements through hoardings / posters, etc. while passing by, it is clarified that such advertisements may carry only the following statement apart from copy of advertisement: “Mutual Fund investments are subject to market risks, read the offer document carefully before investing”.
The above statement shall be displayed in black letters of at least 8 inches height or covering 10% of the display area, on white background. The compliance officers shall ensure that the statement appearing in such advertisements are in legible font.
2. Advertisements through Audio-Visual Media
Likewise, in advertisements through audio-visual media like television, a statement “Mutual Fund investments are subject to market risks, read the offer document carefully before investing” shall be displayed on the screen for at least 2 seconds, in a clearly legible font-size covering at least 80% of the total screen space and accompanied by a voice-over reiteration. The remaining 20% space can be used for the name of the mutual fund or logo or name of scheme, etc.
Advertisements through audio media like radio, cassettes, CDs etc. shall also read the above statement in a way that is easily understandable to the listeners.
3. Promotional Activities, Sales Literature
Section II of aforesaid SEBI Guidelines issued on June 5, 2000 prescribes standards for various forms of communications by the mutual funds. It is clarified that the same standards shall be followed in case of activities organized to promote mutual funds/schemes/asset management companies.
The above guidelines are also applicable for sales literature. With a view to broaden the definition of sales literature as specified in the Guidelines, it is clarified that it shall also include fund fact sheets, research reports, newsletters, performance reports or summaries, telemarketing scripts, seminar texts, press releases and reprints or excerpts of any other advertisements or published article, etc.
4. Performance Advertisements
(i) Disclosure of Benchmarks in Advertisements: The earlier guidelines (Section III, Clause 3.7) prescribe the type of benchmark indices that can be used in performance advertisements of mutual funds schemes. Subsequently, the disclosure of benchmarks in the offer documents and comparison of returns with benchmarks while publishing half-yearly results were made mandatory. Henceforth, all performance advertisements disclosing return statistics shall also mention the returns on the benchmark indices, during the same time periods.
(ii) Performance of Money Market Schemes: Referring to Clause 3.4 (Section III) of the guidelines, considering that the investors in cash/liquid/money market schemes have very short investment horizon, the mutual funds while advertising simple annualized returns of such schemes based on a period of 30 days can also advertise simple annualized returns based on 15 day period.
(iii) Impact of Distribution Taxes: While advertising returns by assuming reinvestment of dividends, if distribution taxes are excluded while calculating the returns, this fact may also be disclosed.
(iv) Pay-out of Dividend: While advertising pay-out of dividends, it shall be disclosed that after the payment of the dividend, the NAV will fall to the extent of the payout and distribution taxes (if applicable), in the main body of advertisement.
5. Ranking advertisements
Clause 3.7 d (1) of the aforesaid Guidelines, shall be substituted as follows:
“Any ranking set forth in an advertisement or sales literature must be current to the most recent quarter ended or such periodicity / frequency of ranking as may be applicable, in the case of advertising prior to the submission for publication or in the case of sales literature prior to use”.
All mutual funds shall comply with the requirements pertaining to advertisements in letter and spirit.
Yours faithfully,
P.K. NAGPAL