The Securities and Exchange Board of India (Sebi) is planning to relax advertisement norms for mutual funds. The securities market regulator may allow mutual funds to use more space in advertisements to promote their products by reducing the disclaimer size.

The mutual fund industry has been crying hoarse that the current advertisement code is very stringent and leaves little room to make a marketing pitch to investors. "There are a lot of statutory requirements because of which fund houses are not able to communicate effectively," said a person familiar with the development.

At present, Sebi has mandated mutual funds to provide several disclosures on the product such as its performance, rating and risk factors among others. Mutual fund officials said the risk factors occupy 50-75% of the advertisement and a significant portion of the advertisement is a repetition of the disclosures made in the offer documents.

Sebi is looking at bringing the domestic mutual fund advertisement code in line with the practices in developed markets. The regulator is likely to do away with the prescriptive format.

"We need to certainly simplify the disclaimers, they need to be brief, direct and useful," said Dhirendra Kumar, CEO of Delhi-based mutual fund tracker Value Research Online. "Elaborate disclosure is a disservice as it dilutes objectivity. I think Sebi should spell out the principles and only regulate if fund houses are in violation by giving misleading information or involved in a fraudulent practice.

Then, I think everyone will act responsibly," he said. Mutual fund officials feel the industry needs some flexibility to decide what goes in an advertisement, as it spends an average of 20-30 basis points on this activity out of the total expense ratio of 2.5%.

Recently, the regulator made it obligatory that the performances of equity schemes should be measured against the Nifty or the Sensex, the most popular indices in the country and for debt funds against government securities. Besides, a scheme's advertisement should also disclose the performance of all the schemes managed by the same fund manager.

Sebi also asked fund houses to avoid giving compounded annualised growth rates or CAGR, expressed in terms of percentage growth while advertising their scheme performance. In 2009, Sebi had pulled up Reliance Mutual Fund for allegedly violating advertisement norms in television clippings in one of its new fund offers.

The regulator had said that the time for display and voice-over of the standard warning in the advertisement was less than the mandated time of five seconds and could lead to a situation, where investors are not able to take well-informed investment decisions. Following which, the fund house withdrew the advertisement. (Economic Times)