sebi:WTM/KMA/IMD/231/02/2010

SEBI · SEBI · 2000-06-05 · Dr. K.M. Abraham, Whole Time Member

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

Direction to abide strictly by the stipulations on advertisements by mutual funds issued by SEBI, both in letter and spirit.

Provisions invoked

• s. 19

Regulations

• Reg. 25
• Reg. 76
• Reg. 75

Parties

• Birla Sunlife Mutual Fund
• Birla Sunlife Asset Management Company Limited
• Chief Executive Officer of BSAML

Holding

BMF and BSAML contravened the SEBI Circular dated June 5, 2000 by advertising '520% growth in 7 years' instead of compounded annualised yield and by using a different font size for the statutory disclaimer, and the CEO of BSAML violated Regulation 25(6A) of the Mutual Funds Regulations.

Full text

Page 2 of 5 2009. It was prima facie found that the revised advertisements were not in conformity with clauses 2(3) and 2(5) of Section III of SEBI Circular dated June 5, 2000. It was noticed that the revised advertisements were published between July 17-23, 2009 in 13 different newspapers and that the hoardings containing the revised advertisements were displayed at 136 sites in 16 cities across the country between July 16-18, 2009. It was alleged that BMF and Birla Sunlife Asset Management Company Limited (hereinafter referred to as BSAMCL) have violated the SEBI Circular dated June 5, 2000. It was also alleged that the Chief Executive Officer of BSAMCL had failed to ensure that BMF had complied with all the provisions of the guidelines, circulars issued in this regard from time to time, prima facie in violation of Regulation 25(6A) of the Mutual Funds Regulations. Thereafter, a notice dated August 3, 2009 was issued by SEBI advising BMF, BSAML and its Chief Executive Officer to show cause as to why appropriate action should not be taken against them for the aforesaid violation. Pursuant to the said notice, BSAMCL vide letter dated August 18, 2009 made its submissions. Subsequently, vide letter dated August 25, 2009, BSAMCL requested SEBI to consider the said submissions on behalf of its Chief Executive Officer also. The submissions of BMF are being considered in the later part of this Order.

Page 3 of 5 reinvested in the units of the scheme at the then prevailing Net Asset Value, as required under clause 2 (3) and (5) of Section III of the ‘Guidelines for Advertisements by Mutual Funds’ issued vide SEBI Circular no. MFD/CIR/4/51/2000 dated June 5, 2000. The contention of the noticees is that the intention was to convey in simple terms growth of the scheme over a period of seven years. According to them, the statement was simple and clear. They also stated that immediately after “520% growth in 7 years”, they added “past performance may or may not be sustained in the future”. I cannot accept the contention of the noticees in this regard. It is a mandatory requirement that if any mutual fund uses performance figures in any of its advertisements, such advertisement ‘must’ adhere to the guidelines issued under the Guidelines issued vide the aforesaid circular dated June 5, 2000. The relevant clauses [2(3) and 2(5)] are reproduced hereinbelow for reference: 2 (3) Only compounded annualised yield can be advertised if the scheme has been in existence for more than 1 year. For the calculation of compounded annualised yield the procedure prescribed in the Standard Offer Document shall be followed. All performance calculations shall be based only on NAV and the payouts to the unit holders. The calculation of returns shall assume that all payouts during the period have been reinvested in the units of the scheme at the then prevailing NAV and it should be clarified in the ad

Page 4 of 5 4. Thus, in terms of clause 2(3), as stated above, only Compounded Annualised Yield can be advertised if the scheme is in existence for more than 1 year. It is not in dispute that the scheme Birla Sunlife Frontlife Equity Fund has been in existence for more than a year. Thus, BMF is mandated to comply with the said requirement. The said Guidelines (Guidelines for advertisements by mutual funds) were issued in accordance with the provisions of the Mutual Funds Regulations. It is well settled that when something is to be done statutorily in a particular manner, it can only be done that way. Thus, the stipulations imposed under the said circular are statutory and mandatory in nature. However, in violations of the requirement (in respect of the Compounded Annualised Yield), BMF inter alia advertised the following “520% growth in 7 years Past performance may or may not be sustained” This is clearly in contravention of the aforesaid said guidelines [2(3)]. I note that to mention the compounded annualised yield clearly in the advertisement is a statutory requirement and it should have been displayed in the manner prescribed in the aforesaid Circular. Moreover, the Advertisement Code and the Advertisement Guidelines were primarily issued to ensure that the investors get true, fair and clear information about the scheme. The intention or the reason behind the same was that the advertisement is not designed in content and format or in print as to likely to be misunderstood

Source: SecMarx — sebi:WTM/KMA/IMD/231/02/2010. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.