Sebi standardises risk warning in MF ads

Market watchdog the Securities and Exchange Board of India (Sebi) today standardised the risk warning that mutual funds have to display in their audio-visual advertisements, with a view to help investors better understand the message.

The new rule, which will be effective from May 1, stipulates that the warning in audio-visual ads should be displayed and both the visual and the voice-over of the standard warning should be run for at least 5 seconds.

Sebi has also modified the standard warning to: "Mutual fund investments are subject to market risks, read all scheme-related documents carefully" from the earlier warning that read: "Mutual fund investments are subject to market risks, read the offer document carefully before investing."

Under the existing guidelines, in ads through audio-visual media like television, the warning is required to be displayed on the screen for at least 5 seconds and be accompanied by a voice-over reiteration.

"However, it has been observed that in some cases the visual and voice-over were run for less than 5 seconds, or if the visual stayed for 5 seconds the voice-over either started late or ended early or both," Sebi said in the circular, adding "in some cases, extra words are inserted in the visual and voice-over rendering the warning unintelligible to the viewer/listener."

Announcing these measures, Sebi said that no addition or deletion of words should be made in the standard warning statement. All mutual funds firms should comply with the requirements "in letter and spirit", Sebi said.

Sebi Chairman C B Bhave had recently said there were financial products being mis-sold by mutual funds, which was a serious regulatory issue.

"There is a tremendous incentive for financial intermediaries to mis-sell financial products. And whether this kind of mis-selling is going on in the market or not and what needs to be done about it is the responsibility of the regulators," Bhave had said.

Bhave had said several firms selling financial products market it in such a way that products looked attractive. However, companies hid the risk factors involved in the said product.