Sebi advertising code for MFs

Sebi has also barred asset management companies from making claims about management capabilities – unless they are supported by a track record of three years – and "unwarranted or unexplained comparisons" with other funds.

While addressing a wider audience through seminars or through the electronic media, any person connected with a particular fund has to restrict himself to generalities and avoid specific references.

Ads and sales literature have to be accompanied or preceded by an offer document. An exemption has been provided in the case of tombstone ads.

Exaggerated claims about funds performances or even superlatives and opinions are taboo unless the fund is able to show statistics to support its claims.

While communicating with investors, MFs cannot treat risk disclosure as required under law as a hedge. Even figures and charts used by the funds during presentations have to be properly sourced.

Tombstone ads should contain only general information on the fund and the scheme being launched with no references to NAV and performance of the fund.

The funds cannot also give comparisons based on ranking given by unapproved third party ranking entities.

If any mutual fund uses performance figures in any of its advertisements or sales literature or release/issue exclusive performance advertisements, such performance advertising must while naming the scheme and its objctives, give details about dividends declared and paid and the NAV at that time.

Calculation of returns would assume all payouts during the period have been reinvested in the units of the scheme at the then prevailing NAV and this should be clarified in the ads

For schemes in existence for more than year the annualised yield should be shown while for funds in existence for less than one year such return should not be annualised. But for money market schemes and othr liquid plans the performance can be shown by a simple annualisation of yields if a performance figure is available for atleast 30 days.

Interestingly very high returns or yield due to extraordinary circumstances such as rise or fall in interest rates have to be clarified in the advertisement.

Schemes cannot give performance data relating to past years but has to ensure that it is current to the most recent calendar quarter.

The circular also touches on the benchmarks to be used while comparing growth parameters. For instance it has suggested that growth funds with a minimum 60% of investments in equities should always be compared against BSE or NSE indices.

Similiarly income funds should be benchmarked against comparable indices such as the I-Sec Bond Total Return Index.

Ranking figures given in advertisements should be by those approved as `ranking entities’ and no fund can claim to be the best performer in any category unless it has an approved ranking to back it. Any promotional literature issued by the MF should also give details on the ranking, especially its validity peiod, along with the basis for ranking.

The circular also specifies the norms for ranking so that a ranking based on yield can be done only on the basis of current standardised yield.