Safeguarding investor interest against mutual fund industry’s penchant to obfuscate the details and warnings about various products they launch just received a major push.
The Securities and Exchange Board of India (SEBI) has issued a show cause notice to Reliance Mutual Fund as it has been found to have gone against a rule that has been made mandatory by the market regulator which defended and protected retail investors right to know.
SEBI had issued a circular, in February 2008, to all mutual funds that said: “With effect from April 1, 2008… the time for display and voiceover of the standard warning be enhanced to five seconds in audio visual advertisements.” More than that, SEBI had stated that advertisements of every scheme be submitted to it within 7 days from the date of issue.
Far from doing so, Reliance MF, for its Infrastructure Fund new fund offer (NFO), which opened on May 25, 2009, submitted the advertisement only on June 3, 2009 and more than that, the time devoted to the warning for investors was found to be short – it was of less than five seconds duration, which leads to a situation where investors are not able to take well informed investment decisions.
The rapid fire manner in which the standard warning was conveyed in the audio visual, “Mutual fund investments are subject to market risks, please read the scheme information document carefully before investing”, rendered it unintelligible, said the SEBI.
This has been considered as a serious violation, leading SEBI to say, “In order to protect the interest of the investors and for orderly development of the securities market, urgent directions in this regard need to be issued. Further, in order to ensure that such kind of violations do not continue or repeated to the detriment of the investors and also to act as a deterrent, certain preventive directions need to be issued immediately.”
To follow up on the direction, SEBI has ordered Reliance MF to and Reliance Capital Asset Management Limited to forthwith withdraw the advertisement in its current form. The fund can revive the ad after making suitable changes to it that will put it within the ambit of rules.
Sending a clear warning for the future not just to Reliance MF but the entire industry, SEBI has directed the fund to indicate why it should not be restrained from launching any new scheme, “for an appropriate period for the aforesaid violations”.
Reliance has the option of replying to the SEBI order within 15 from the issue of the order on June 3, 2009.
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