Sebi allows celebrity endorsements in mutual funds, issues new advertising code

To increase awareness of mutual funds as a financial product, Sebi has allowed celebrities to endorse the instrument at industry level and issued new advertising code that will require fund houses to communicate in a simple manner with the public.

Besides, the Sebi board has decided to allow investment by mutual funds in REITs and InvITs.

The move is likely to help in attracting more number of investors into Real Estate and Infrastructure Investment Trusts.

Also, it issued new advertisement code for mutual funds so that performance related information should be disclosed in a simple and effective manner, while providing precise and latest information to investor.

At its board meeting in Jaipur on Saturday, Sebi allowed investment by mutual funds in REITs and InvITs saying the units of such trusts are hybrid instruments.

A mutual fund would be permitted to invest only up to five per cent of its net asset value in units of a single issuer of REITs and InvITs.

However, such limit would not applicable for investments in case of index fund or sector or industry specific scheme pertaining to REITs and InvITs.

The limit would be 10 per cent of its NAV in units of REITs and InvITs. These caps would not be applicable in case of index funds. Sebi has deliberated the proposals relating to review of existing advertisement guidelines for mutual funds.

It considered the existing guidelines on publishing performance of schemes in advertisements issued by mutual funds should be reviewed. Performance of mutual fund schemes should be advertised in terms of CAGR for the past one year, three years, five years and since inception, in place of current requirement to publish scheme's returns for as many as 12-month periods as possible for the past three years.

Besides, performance advertisement of mutual fund schemes should provide information based on last day of month-end preceding the date of advertisement, instead of current requirement of publishing such data based on last day of preceding quarter-end. Performance of other schemes managed by the fund manager should be disclosed in a summarised manner.

Sebi has permitted to mutual funds to provide an exact link to such summarised information. The board of Sebi has allowed celebrity to endorse the instrument at an industry level as part of its efforts to increase awareness of mutual funds as a financial product category.

This is not applicable for endorsing a particular scheme of a mutual fund or as a branding exercise of a fund house. Moreover, a prior approval of Sebi would be required for issuance of such advertisements which feature celebrities.