Sebi tightens advertisement and valuation norms for MFs

The Securities and Exchange Board of India (Sebi) has further tightened advertisement norms for asset management companies (AMCs), putting greater responsibility for fair valuations on fund managers.

In its latest amendment to regulations for the fund industry, Sebi has widened the definition of “advertisement” to include all forms of communications on behalf of an AMC, which may influence the decision of an investor. Fund houses have been barred from using a celebrity as part of the advertisement. They have also been asked to discourage any slogan unwarranted and unrelated to the nature, risk and return profile of the product.

Sebi said the AMC and the fund’s sponsor would be liable to compensate the affected investors for unfair treatment as a result of inappropriate valuation.

“Extensive use of technical or legal terminology, complex language and excessive detail should be avoided,” Sebi has said.

Further, on the standard warning which says, “Mutual Fund investments are subject to market risks, read all scheme-related documents carefully”, there should not be any addition or deletion of words. For the audio-visual media, the warning should run for at least five seconds.

Sebi said the policies and procedures approved by the AMC board should identify the methodologies to be used for valuing each type of security/asset held by the scheme.

Moreover, AMCs would have to conduct a periodic review of the valuation policies and procedures. “The valuation policies and procedures shall be regularly reviewed (at least once in a financial year) by an independent auditor to seek to ensure their continued appropriateness,” said Sebi.

The AMCs are also required to have policies to detect and prevent incorrect valuation. “The AMC shall be responsible for fairness of the valuation and the accuracy of the NAV,” added the regulator.