The Securities and Exchange Board of India issued a new advertising code allowing celebrities endorsements for Mutual Funds
In his last address at the Association of Mutual Funds of India’s (Amfi- the Indian mutual fund industry’s trade body) annual general meeting held in Mumbai on Monday as the chairman of the capital market regulator, Securities of Exchange Board of India (Sebi) chief U.K. Sinha nudged the mutual funds industry to advertise direct plans.
“Mutual Funds are largely sold on a return basis. They show how much did this fund deliver in the last one year, three years, etc., and when a celebrity starts endorsing a particular fund house it means that there is a direct endorsement of the returns that the Mutual Fund is generating. So, what the regulator has been wanting to do is use celebrities to up the game for Mutual Funds overall at a category level. For example, Amitabh Bachchan can come on screen and represent Association of Mutual Funds of India (AMFI) and he can say how Mutual Funds can improve your life or demystify Mutual Funds.”
The point to drive home is that mutual funds, by their nature, are a technical product. They require the investor to have a basic knowledge. Unlike an active mutual fund investor, a new investor may not understand the market dynamics at all or as well. So, a mutual fund advertisement which simply promotes its scheme may not have a strong appeal, especially for the first-time investors.
Other than 18 million Indian investors who have added mutual funds to their investment kitty so far, the rest largely still tend to associate mutual funds with laying a wager. After all, ‘mutual funds are subject to market risk’. In fact, most people don’t even know the difference between stocks and mutual funds. Or else, they wouldn’t perceive mutual funds as a pure risk investment.
Financial advertising comes with a responsibility, and AMCs should bear that in mind. Given that there is substantial lack of awareness about mutual funds, it is important that the focus of the AMC’s should be on the ‘investor education’ (why mutual funds are good) and dispelling all the myths around it.
Like Association of Mutual Funds in India (AMFI) is doing with its latest TV campaign ‘Mutual Funds Sahi Hai’. All ads in this series depict friends from different walks of life indulging in casual day-to-day conversations about money. Each ad has one friend raising doubts on mutual funds and other friend clearing his apprehensions. So, these ads talks about how mutual funds can be started with a monthly investment as low as Rs. 500; can meet long-term goals such as child’s wedding as well as short-term goals as buying a car; and anyone, whether a low salaried individual, a small-town resident, a housewife/working woman or an HNI can invest. One of the ads also emphasizes that we face risk in our everyday life – a ceiling fan can fall on your head or an unforeseen fall off the chair, so we can take that bit of risk in mutual funds as well.
AMFI has managed to convey the messages in a simple, short, honest and powerful manner, striking the right chord with every common investor.
Similarly, HDFC Mutual Fund had also earlier launched a five-ad campaign ‘Invest-Wise’ to ward off the fears Indians have about mutual funds. The various benefits and key aspects of investing in mutual funds are showcased through the slice of life situations. So, there is an old woman struggling to learn swimming which indicates that mutual fund investment should start early. Then, there is a little girl waiting impatiently for kulfi made by her mom to freeze, which indicates that you should have a long-term horizon for mutual funds.
By taking the analogy of a little girl in every ad, HDFC Mutual Fund has tried to portray that every first-time investor is like an innocent child who needs proper guidance to make the right decisions. Undoubtedly, HDFC Mutual Fund has hit the bull’s eye.
However, there are a few mutual fund houses which prefer to directly advertise their schemes. An old TVC of Birla Sun life Mutual Fund is a good example here. This ad shows a father telling the story of the thirsty crow to his son and explaining how trying something different and smarter can help to reach goals. The ad ends with a call-to-action to invest in the Recurring Savings Plan.
This Birla Sun Life Mutual Fund ad can be easily mistaken with a Bank Recurring Deposit plan. The idea of investing in mutual funds through SIP has been conveyed ambiguously. Perhaps, Birla Sun Life Mutual Fund realized its folly to return a year later with a new TV campaign called ‘Change Tabhi Toh Maanoge’ targeting investors who lack the time or knowledge to understand mutual funds.
Then, there are advertisements which leave you wondering what it was all about. For example, the campaign ‘Mission Prosperity’ launched by Reliance Mutual Fund. It shows that a man is trying to propose his girlfriend, but some or the other obstacles keep popping up due to which time runs out and she walks away. The ad gives the message ‘don’t let time ruin your opportunity. It then ends with soliciting people to celebrate the 7th of every month as the National Mutual Fund Day.
The underlying assumption of this ad was that investors know what mutual funds are and that they should invest. While, the ad also kicked off its investor awareness building initiative series on CNBC Network 18, it didn’t really create any spark and failed to impress.
The advertising in the mutual fund industry has been visibly divided into two groups – one that believes in investor education and other that believes the purpose of advertising is to sell, so why not promote a particular scheme?
With SEBI announcing its latest guidelines on mutual fund advertising, both groups should be appeased for now. SEBI has said that mutual funds should disclose the performance of their schemes since inception and during the preceding one-year, three-year and five-year periods while advertising. It has also laid down every mutual fund is compulsorily required to set aside at least 2 basis points (bps) on daily net assets for investor education and awareness initiatives. So, whether the advertising is targeting a new or an experienced mutual fund investor, it should not mislead him the either way.
SEBI has also permitted celebrity endorsement in mutual fund advertising. However, it is allowed only at the industry level, which means AMC’s can’t publicise their brand or a scheme. It’s only AMFI which can rope in a celebrity to represent the industry. Well, as long as we get to see some ‘oomph’ factor in mutual fund commercials, who is complaining?
It would be really interesting to watch now how the saga of new mutual fund commercials unfolds.
“Brands have to be responsible and should clearly communicate the offerings and risks of the product while promoting it. Celebrities should be used to put a face to a brand that will build recall value and increase the reach of the ads.”
Also, drawing attention to the cons of celebrities, especially in the finance sector, “Another caution on using celebrities to build a brand is the risk it comes with. If the celebrity’s image takes a hit so does your brand. And such a hit often tends to have significant repercussions for financial brands where trust is key.”
Inputs by Mohit Gang , former Senior Vice President & Head – Investments, HSBC and Ex. VP of Citibank, India and now has co-founded www.moneyfront.in.