No Rapid Fire MF Risk Warnings: SEBI

Market regulator SEBI has ruled that the standard warning message while selling mutual funds should be made intelligible to investors. It has made it mandatory that the time for display and voice over of the standard warning be enhanced to five seconds in audio visual advertisements, or alternately should be read in an easily understandable manner.

Although most fund officials say that any move which makes an investor more aware of the risk factors is desirable, they point out insurance investments do not carry the same level of warnings.

According to them, insurance companies selling Unit Linked Insurance Plans, should also be asked to state that they are subject to similar market risks since Ulips essentially invest in the stock markets too.

Unless IRDA comes up with a similar set of rules for insurance houses, the problem of no level playing field still remains, they reckon. In recent years, MFs have been losing the battle to insurance companies selling Ulips, as the latter fetch more commissions for the people selling them.

In a release issued on 27 February 2008, SEBI has objected to the ‘rapid fire manner’ in which “Mutual Fund investments are subject to market risks, read the offer document carefully before investing” is recited in the audio visual and audio media.

It said that the recital should be made in a manner that makes the motive behind warning more cleared to the listener or the reader. AP Kurien, chairman of AMFI, a trade body of all mutual fund houses in the country, said that the regulator had come out with the move after consultation with the body.