Up till now, mutual fund advertising in India has typically devoted a greater area to statutory warnings than cigarette advertising used to, or liquor advertising does in parts of the world where it’s allowed. It isn’t unusual for up to 40 per cent of print advertising to be devoted to warnings and disclosures of one kind or another.
Now, finally, markets regulator SEBI has rationalised and simplified the regulations pertaining to such advertising. And for once, when a regulatory organisation says rationalised, it’s actually true. The bulk of the verbiage in existing fund advertising consists of various disclaimers and risk factors. For example, the leading disclaimer is that the reader of the advertisement is advised to take advise from an advisor because deciding on an investment might require professional expert advice. It generally goes on to say that there’s no assurance or guarantee that the scheme’s goals will be achieved. Then, it goes on to say that the past performance of the schemes is neither an indicator nor a guarantee of future performance, and may not be considered for future investment decisions.
This is all unexceptionable stuff, in a legalistic sense. Except that anyone who understands the basic psychology about how people take decisions that such warnings are unlikely to actually affect investor behaviour. If you need to be advised that you need might need advice from an advisor, then you are unlikely to heed that advice anyway.
SEBI’s new code does it better. Firstly, it reduces the warning just to the brief ‘Mutual fund investments are subject to market risks. Please read the offer document carefully,’ which is a huge improvement over the earlier stuff. More importantly, the new code lays down the principles rather than micro-manage the language. It says that the ads should be ‘accurate, true, clear, complete, unambiguous and concise’ that they should not contain statements ‘which are biased or deceptive, based on assumption/projections and testimonials’ or ‘Slogans unrelated to nature and risk or return profile of the product’. The code also specifically bans the use of celebrities, something that is a sharp departure from what is allowed to insurance companies and banks.
The one part of the new regulations which goes down to details is the part that specifies how funds’ performance and other financial data is to be specified. This part is important because the advertising of financial products is an important component of the integrity of the product. Unlike say, a house or a car or clothes, there is no physical object to examine and the entire decision-making process is based on information alone. As such, the standardisation and comparability the core performance and returns data is crucial.
Another provision is that fund advertising must not include any ratings because such ratings are not strictly comparable. Interestingly, more than one media-person asked me whether I was unhappy with this. They assumed that because Value Research rates mutual fund and that some of these ratings are used by funds in their advertising, the banning of ratings would lead to some loss of business to Value Research. However, this is not the case. Value Research rates all funds anyway and doesn’t charge anyone for these ratings. They are published in our magazines and are available freely on ValueResearchOnline.com. Anyone is free to access them and use them.
In fact, for the investor, it is actually better to see these ratings on our website rather than in a fund’s ad. That’s because only funds that get a good rating would use them in ads. On ValueResearchOnline.com you can also check out which are the ones that get a poor rating. If you’ve already invested in such a fund, then that might actually be more useful!
From an advertising perspective, all this could result in duller ads. However, that’s a challenge that marketers will have to face up to. At least the ads will be more information rich and better able to support actual decision-making by customers.
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