In this Blog Help India Insure, it has been our consistent view that mutual funds as a rule do not give high returns. (Read the all the articles under the category Finance for Life Insurance, also read the power point presentation Why Life Insurance is the Best Financial Product). Some do for a short while, none give high returns over the years. At the time of purchase we do not know which mutual fund will give us high returns and which will give us low returns. The advertising campaign by the mutual fund association (Mutual Fund Sahi Hai) conveys the meaning that the investor has nothing to loose and everything to gain by investing in mutual funds. Now SEBI has woken up after nearly one year and has put a brake on this advertising campaign.

SEBI asks AMFI to indicate the risks of mutual fund investing in their advertisements

The Business Standard reports (18 December 2017, Pune Edition) on its front page that the Securities Exchange Board of India (SEBI) has asked mutual funds to downplay the advertisement campaign being run by the Association of Mutual funds of India (AMFI). The advertising campaign popularly known as “Mutual Fund Sahi Hai“) exaggerates the benefit of high returns of mutual funds, without mentioning the risks associated with investing in mutual funds. It was reported that SEBI has asked AMFI to moderate the advertising campaign and highlight the practical aspect without claiming any life-changing experiences, as the advertisements currently do. The  Chairman of AMFI, Mr. A. Balasubramanian, has responded by accepting SEBI’s point of view and indicated that the advertisements should also highlight the risk factors.

Better late than never! Innocent lay persons have been saved

For the past nearly one year AMFI conducted a very aggressive “Mutual Fund Sahi Hai” campaign that had many misleading messages. The direction from SEBI has come one year too late. Innocent investors were made to believe that investing a little bit every month in mutual funds would give large enough returns to finance their dreams of a house, a car, etc., in double quick time. What was even more worse was that the advertisements targeted those who had not invested in mutual funds as yet and enticed the gullible investor with dreams of getting high returns. This dream was spelt out in the advertisements without also informing the innocent and gullible that there are downside risks involved in mutual fund investing.

Mutual Fund investments are volatile

Mutual funds take the investor’s money and invest it in equities, corporate debt, foreign exchange, gold, etc. All these assets in which the mutual funds invest are highly volatile, and their prices go up and down. There are both short term and long term risks of investing in these assets. If there is a possibility of high returns in any investment, that investment also carries a corresponding high risk. The higher the risk the higher the expectations of returns. The risk is the investor may or may not get the higher returns, or even lower returns. Money does not grow on trees. Without taking the risk of not getting returns or even getting negative returns, one cannot expect to aim for high returns.

If the risks are not stated with adequate information and data, the investor is led to believe that mutual funds can only give high returns, which is not the case. This amounts to mis-selling by deliberately keeping crucial information away from the public.

Actually Mutual Fund Sahi Nahi Hai! But it always better late than never.