How Mutual Fund Advertisements Can Be Highly Misleading - Outside View by PersonalFN

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How Mutual Fund Advertisements Can Be Highly Misleading
Mar 21, 2017

Mutual funds are cool.

This is the message AMFI (Association of the Mutual Funds in India) is trying to pass on to millions of Indians.

Recently, it launched a campaign "SahiHai", the Hindi slang for "cool", to create awareness among investors and bust the misconceptions about mutual fund investing.

Even after decades of being in existence, mutual funds fail to become a popular investment route.

Undoubtedly, they need a better promotion strategy.

Mutual funds are supposed to spend 0.02% of their total Assets Under Management (AUM) on investor education. In the past, it was observed that they spent money set aside for investor education inefficiently.

As a corrective step, SEBI (Securities and Exchange Board of India) directed mutual fund houses to transfer half the corpus maintained for investor education to AMFI. The latter now has the responsibility to promote mutual funds in a right way.

AMFI is likely to spend around Rs 160 crore to Rs 170 crore on promoting mutual funds. The campaign "SahiHai" is expected to cost Rs 40 crore approximately.

Now the question is: Has AMFI chosen the correct way to communicate it?

At the launch of "SahiHai", Mr A.Balasubramian,Chairman of AMFI said, "There is a need to encourage households to shift from physical savings to financial avenues, especially mutual funds. With this objective in mind, under SEBI's guidance, AMFI has launched this investor awareness outreach program. I am sure the public will find these simple but powerful messages very thought provoking and will be encouraged to start investing in mutual funds."

J. Walter Thompson (JWT) - one of the most renowned marketing and communication brand- handled the responsibility of the creative work for the campaign. Hanoz Mogrelia, VP & ECD, JWT shared his experience about the campaign.

He said, "SahiHai may seem like a very simple idea. But, to execute this idea, we had decided to stay in the space of warm, real conversations between friends. We shot eight commercials over a fortnight using absolute 'non-models', we shot at real locations, using live sound recording. The client team must be commended for the tremendous faith they have reposed in this idea; and backing it with such a massive ad campaign."

It seems AMFI has tried to make the investors' awareness campaign as realistic and convincing as it could. Now it remains to be seen if this hard work pays off.

But, the even bigger question that comes to mind is-by allowing revisiting advertisement guidelines for mutual funds, has SEBI done the right thing? As a result of this, now celebrities can start endorsing mutual funds, though at an industry level.

More details about the development...

  1. Celebrities will not allowed to endorse any specific scheme.
  2. Advertisements featuring celebrities shall take the prior approval of the capital market regulator.
  3. For the investors' better understanding, mutual funds will have to show simple returns generated by a scheme, along with CAGR (Compounded Annualised Growth Rate) of investments.
  4. An advertisement about a particular scheme must also show how the other schemes managed by the same fund manager are doing.

It seems, while revising the advertisement code, SEBI has taken due care. It remains to be seen how celebrity endorsements actually work.

The propaganda of fairness creams sparked off debates on whether celebrities should be held responsible for their endorsements, or the responsibility shall be fixed only on the product manufacturer (in this case, on the mutual fund industry).

Probably it will depend on the profile of a celebrity and how the advertisement is presented. Hopefully, SEBI will turn down ads that may paint a wrong picture. Celebrity endorsements will help the industry attract investors' attention-the primary objective of any ad campaign.

However, one can only hope that celebrity endorsements won't be unrealistic. Ads for health drinks, pan masala, and fairness creams have tainted the image and role of celebrity endorsements.

Promoting financial products is far more a serious affair than a tangible product. After all, it's a matter of one's financial wellbeing. Who will be responsible, if the narrative or the script of these celebrity ads go wrong despite SEBI having its check points?

Hopefully, the mutual fund industry will refrain from making lofty claims.

If you wish to select winning mutual funds to achieve your financial goals, and need help; don't hesitate to seek services of SEBI registered investment advisor or Certified Financial Guardian, who can handhold you in the journey of wealth creation. Remember, every investor needs a Financial Guardian, who stands as symbol of Trust and Respect.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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