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3 mins read . 03 Nov 2023 . 09:11 AM
The Association of Mutual Funds in India (AMFI) has brought fresh guidelines to the table, urging asset management companies (AMCs) to use 10-year compounded annual rolling returns as the primary metric in mutual fund advertisements. This move is aimed at enhancing transparency and accuracy while cracking down on misleading practices that can perplex investors.
In response to concerns about some AMCs breaching the Advertisement Code under SEBI (Mutual Funds) Regulations, 1996, AMFI issued a Best Practice Guideline (BPG) circular on November 1, 2023. This guideline focuses on providing clear conceptual guidance to investors through non-scheme related promotional materials.
What Are Illustrative Returns in Mutual Fund Ads?
AMFI's new mandate requires mutual funds to prominently feature only the 10-year compounded annual rolling returns it has specified in non-scheme related brochures and advertisements.
For equity schemes aligned with the Sensex and Nifty benchmarks, the permitted returns are 12.64% and 12.93%, respectively. These returns are calculated as the mean of 10-year rolling returns between June 1, 2013, and May 30, 2023.
The same calculation method applies to all other fund categories. For fixed income funds linked to the 10-year G-Sec benchmark, the allowable return for illustration is 7.20%. Hybrid funds with a 75% equity allocation can illustrate returns of 11.28% for Sensex-benchmarked schemes and 11.50% for Nifty-benchmarked schemes.
For schemes with a 75% debt allocation, these values are 8.63% and 8.56% for Nifty and Sensex benchmarked schemes, respectively. For schemes with an equal allocation of equity and debt, the permitted returns are 9.92% and 10.70%, respectively.
SEBI plans to annually review the mentioned returns based on benchmark changes, preventing the use of future returns or higher returns than those prescribed by AMFI. Additionally, these numerical illustrations can be used for systematic investment plan (SIP), systematic withdrawal plan (SWP), and systematic transfer plan (STP) calculators to elucidate the power of compounding.
AMCs are allowed to use tools such as goal planning and SIP/STP/SWP calculators that enable investors to understand the compounding effect by selecting returns within a range of 2-13%.
The guidelines also emphasize maintaining consistent font sizes for disclaimers in advertisements to ensure uniformity in advertising materials.