I recall that SEBI had clearly denied this to the industry, many years ago. The only argument that AMFI could put in support was that the insurance industry is doing it. When insurance itself is a bad product, the mutual fund industry should be playing on the weakness of insurance as a product. Alas, many sponsors are in both businesses and that is the problem. This is why AMFI, instead of opposing celebrity endorsements in insurance, wants it for MF also. For sponsors who are in both businesses, they will not take a stance against insurance. There lies the irony. No one has any genuine concern for the investor. Remember that AMFI is an industry body. So they represent the interests of the owners alone.
(Below appears in ET Wealth, Today)
Indians love to hero worship. For them, celebrities are like what the pied piper to the rats. Celebrities in India earn far more than their global counterparts when it comes to endorsement revenues even though the revenues generated by the products may not be as high. This high payout is because of their extraordinary power to draw people in. Imagine the pull that stars like Rajanikant or Amitabh or the Khans have over their audiences. They can sell anything.
Celebrities do not understand financial products sufficiently to endorse them. Just go back to recent history to look at the “Home Trade” where a sportsman and a film star endorsed the brand and the outcome is well known. The important thing to understand is that the celebrity is far wealthier than the average person. Even if he is invested in the product he endorses, the proportion of his money invested in the product will be a very small fraction of his total wealth. The unsuspecting investor will be lured big time in to products that he does not understand.
Celebrity endorsement for the industry is tolerable. Endorsing specific fund houses or specific products will lead to unethical selling practices. Endorsement of specific fund houses will mean that the richest AMC will end up spending the most and get an unfair advantage. Thus far, SEBI has imposed strong controls on the mutual fund industry (sometimes to the extent of impracticability) and permitting celebrities to endorse MF products/Houses will be retrograde and contrary to its intent of providing investor protection. And, given the affordability factor, it will distort the level of the playing field further.
January 25, 2017