In a letter dated March 3, the capital markets regulator directed the industry body Association of Mutual Funds of India (AMFI) to ask fund houses to refrain from this practice and remove promotional material such as advertisements, illustrations, pamphlets, and brochures that make these claims.
In a separate communication on March 5, AMFI said it has observed that mutual funds put out illustrations that depict future returns on the basis of assumptions and projections.
“Illustrations are provided in the advertisements/presentations/brochures/pamphlets which would lead investors to believe they will be receiving fixed returns for their investments including that of SIPs (Systematic Investment Plans) by demonstrating SWP (Systematic Withdrawal Plans) as a multiple of SIP,” said the industry body. “Disclaimers and assumptions are made in fine print that are likely to be missed out by investors.”
Emails to Sebi and AMFI on this issue were unanswered until Wednesday press time.
In a bid to boost sales, various asset managers made catchy illustrations that projected returns on their monthly SIP investments for 20 years. Once a corpus was created after 20 years, the advertisement said investors wanting regular income could withdraw their investments regularly through the SWP route. The illustration also showed that despite the withdrawal, the capital is protected and even grows.
AMFI said such advertisements are ambiguous and likely to be misunderstood by investors and are not in compliance with the letter and spirit of the Sebi regulations.Mutual funds have also been asked to place a copy of this communication before the board of directors of their asset management companies and the trustees.
