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The Association of Mutual Funds in India has made it mandatory for mutual funds to display only the 10-year compounded annual rolling returns prescribed by it in non-scheme related pamphlets and advertisements.
In March, market regulator SEBI had said that the advertisements by some asset management companies did not comply with the letter and spirit of the code prescribed by it.
Some of the advertisements and brochures misled investors into believing that they would receive fixed returns, including in the case of systematic investment plans or SIPs, by projecting a systematic withdrawal plan as a multiple of SIP.
SEBI said accompanying illustrations depicted future returns on the basis of assumptions and projections.
Moreover, disclaimers and assumptions were made in fine print, which is likely to be missed by investors, it said.
The market regulator asked AMFI to direct all AMCs to refrain from making such ambiguous disclosures and advertisements, which are likely to mislead investors.
In consequence, the AMFI Operations and Compliance Committee felt it would be appropriate for AMFI to issue a best practice guideline for numerical illustrations depicting future returns in non-scheme related promotional material.
AMFI has thus mandated that handouts on equity schemes will indicate Sensex and Nifty return of 12.64 per cent and 12.93 per cent, respectively, calculated between June 1, 2013 and May 30, 2023.
The investment break-up
For hybrid funds investing 75 per cent in equity, it would be 11.28 per cent for Sensex-benchmarked schemes or 11.50 per cent for schemes tracking Nifty. This includes 10-year GSec returns.
For schemes investing 75 per cent in debt, the returns to be displayed would be 8.63 per cent and 8.56 per cent, respectively, for Nifty- and Sensex-benchmarked schemes, including 10-year GSec.
For schemes investing equally in equity and debt, it would be Sensex and Nifty plus GSec return of 9.92 per cent and 10.70 per cent, respectively.
For multi-asset funds, mutual funds can display a return of 9.80 per cent, which includes GSec 10-year, gold and Sensex, while it would be 9.92 per cent for schemes tracking Nifty, GSec and gold.
The returns derived by AMFI will be reviewed annually, based on the movements of the benchmarks.
None of the illustrations from mutual funds shall indicate returns higher than the returns prescribed by AMFI, it said.
To ensure clarity, no future returns can be shown even in an illustration.
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