Sebi frowns on assured returns, asks MFs to remove related ads, brochures

Mumbai, March 6, 2023 

Says MFs using illustrations based on assumptions; disclaimers made in fine print can escape investors

The Securities and Exchange Board of India (SEBI) has asked mutual funds to refrain from assuring fixed returns to investors while advertising their products. The market regulator has directed fund houses to remove all such advertisements or presentations in circulation.

In a letter to the Association of Mutual Funds in India (Amfi), Sebi observed that fund houses include certain illustrations in their advertisements, presentations and brochures that can "lead investors to believe that they will be receiving fixed returns for their investments".

"Illustrations are shown depicting future returns on the basis of assumptions and projections. Disclaimer and assumptions are made in fine print that are likely to be missed out by the investors," the letter stated.

The letter specifically highlights the use of systematic switch plans (SWPs) in illustrations to indicate regular returns.

SWP is the opposite of SIPs as they allow investors to withdraw a certain portion of their corpus every month. The facility is mostly used by retirees to meet their regular expenses.

The regulator has asked fund houses to abide by the advertisement code set by Sebi. The regulations do not allow fund houses to promise returns to investors since mutual funds invest in equity and debt markets, which go through ups and downs depending on various factors.

[The Business Standard]