In a circular issued earlier today, the Securities and Exchange Board of India (SEBI) has forbidden mutual funds from offering indicative yields to lure investors. Indicative yields and portfolios are generally revealed by funds in the case of fixed maturity products (FMPs).
This practice came under the scanner during the recent liquidity crunch that FMPs faced. Investors were up in arms because FMPs were unable to actually match the promises implied by indicative yields.Says the circular, "It is ... decided that the Mutual Funds shall not offer any indicative portfolio and indicative yield. No communication regarding the same in any manner whatsoever, shall be issued by any Mutual Fund or distributors of its products. The compliance of the same shall be monitored by the AMC and Trustees and reported in their respective reports to SEBI."
Notably, the credit crisis has triggered a sharp decline in the once-dominant FMP funds. During 2008 Q4, the asset base of FMPs decline by more than a quarter from Rs 1.02 lakh crore to Rs 75,000 crore.