The Securities and Exchange Board of India (Sebi) has released a code ofconduct for mutual funds for marketing and distributing their schemes whicheffectively clamps down on any attempt to make alluring statements toattract investors.

According to the guidelines, contents of advertising by a mutual fund shouldbe verifiable from the fund's offer document. Forecasts of NAV growths andpromise of any returns - even by implication - if not backed by adequatereserve funds or sponsors' or third-party guarantees would tantamount tomisleading the public.

Any ads or sales literature issued by MFs would be treated as misleading ifit gives part incomes, returns and growth in net asset values unless theseare computed as per approved guidelines.

Sebi has also barred asset management companies from making claims aboutmanagement capabilities - unless they are supported by a track record ofthree years. It has also barred MFs from "unwarranted or unexplainedcomparisons" with other funds.

While addressing a wider audience through seminars or through the electronicmedia, any person connected with a particular fund has to restrict himselfto generalities and avoid specific references.

Ads and sales literature have to be accompanied or preceded by an offerdocument. An exemption has been provided in the case of tombstone ads.Exaggerated claims, use of superlatives and opinions about fund performanceare banned unless the fund is able to show statistics to support its claims.While communicating with investors, mutual funds cannot treat riskdisclosure as required under law as a hedge. Even figures and charts used bythe funds during presentations have to be properly sourced. Tombstone adsshould contain only general information on the fund and the scheme beinglaunched with no references to net asset value and performance of the fund.The funds cannot also give comparisons based on ranking given by unapprovedthird-party ranking entities.

If any mutual fund uses performance figures in any of its advertisements orsales literature or releases performance advertisements, such performanceadvertisement must while naming the scheme and its objctives, give detailsabout dividends paid and the NAV at that time.

Calculation of returns would assume all payouts during the period have beenreinvested in the units of the scheme at the then prevailing net assetvalue and this should be clarified in the ads.

For schemes in existence for more than a year, the annualised yield shouldbe shown while for funds in existence for less than one year, such returnsshould not be annualised. For money market schemes and other liquid schemesof mutural funds, the performance can be shown by a simple annualisation ofyields if a performance figure is available for atleast 30 days.

Very high returns or yields due to circumstances such as rise or fall ininterest rates have to be clarified in the advertisement.

Schemes cannot give performance data relating to past years but have toensure that it is current to the most recent calendar quarter.

The Sebi circular also touches on the benchmarks to be used while comparinggrowth parameters. For instance, it has suggested that growth funds with aminimum 60 per cent of investments in equities should always be comparedagainst BSE or NSE indices.

Similiarly, income funds should be benchmarked against comparable indicessuch as the I-Sec Bond Total Return Index.

Ranking figures given in advertisements should be by those approved as`ranking entities' and no fund can claim to be the best performer in anycategory unless it has an approved ranking to back it. Any promotionalliterature issued by the MF should also give details on the ranking, itsvalidity period, along with the basis for ranking. The circular alsospecifies the norms for ranking so that a ranking based on yield can be doneonly on the basis of current standardised yield.