“Amfi has directed Paisa Bazaar to seek Sebi’s approval before using celebrity advertisements so that they are not in violation of the ad guidelines laid down by Sebi,” said A Balasubramanian, chairman at Amfi.
To be sure, Amfi doesn’t have regulatory powers like Sebi, however, it often advises participants on best practices for the industry.
Sources say market regulator Securities and Exchange Board of India (Sebi) is looking into the issue following complaints from some industry players.
Paisa Bazaar, which recently forayed into online mutual fund distribution, has come out with a 20-second video clip featuring Bollywood actor Kumar. The ad, which talks about the benefits of investing in direct plans, has already got 1.6 million views on YouTube. There are also SMS-es doing the rounds that claim “Mutual Funds keliye Paisa Bazaar Sahi Hai”.
A week ago, G Mahalingam, whole-time director, Sebi, had reiterated that the Rs 23-trillion MF industry needs to be cautious while spending big bucks on advertisement as investors might get misled.
Sebi has also been asking industry body AMFI to promote direct plans as a low-cost alternative to regular plans. In a circular issued last year, Sebi said celebrity endorsements can only be done at an industry level for the purpose of increasing awareness of mutual funds as a financial product category. However, the circular goes on to say that endorsement should not promote interests of any one particular scheme or a fund house.
Industry players say Paisa Bazaar’s latest ads could be based on the interpretation of Sebi’s new norms that allow celebrity endorsements at the industry level. Paisa Bazaar's ad could prompt Sebi to issue clarity on the issue on whether brand promotions by universal platforms should be construed as industry-level ads.
An earlier Paisa Bazaar commercial, launched in January, had made the claim that direct plans are the secret to higher returns as they save on distributor commissions. However, this ad didn't have any celebrity endorsement.
In the meantime, the ad featuring Kumar has also caused a furore among the distributor community, which earns its income through regular plans.
"If proactive steps are not taken to address this, it could lead to a dangerous precedent for an industry which is seeing huge investor interest from global funds that are chasing big returns for their investments," said AK Narayan, former president of IFA Galaxy, a Chennai-based IFA association.
"As individual distributors or IFAs, we cannot compete with the private equity-backed start-ups like Policy Bazaar or Paisa Bazaar, which have huge piles of cash to burn," said a distributor on the condition of anonymity. They added that retail clients, unlike institutional clients, need hand-holding and shouldn't be pushed towards direct plans just because they can save a couple of percentages in distributor commissions.
Recently, Policy Bazaar, along with Paisa Bazaar, secured $238 million (Rs 16 billion) in equity financing led by SoftBank, the world's largest technology investor.
Individual distributors are already feeling the heat with the impending entry of Alibaba-backed PayTM. Another distributor said that if the likes of PayTM were allowed to use celebrity endorsements, it would be difficult for individual distributors to survive.