Do you recognize this mandatory statement which comes at the end of so many TV advertisements: ‘Mutual fund investments are subject to market risks, please read the offer document carefully before investing’?
Fund houses cram this mandatory risk warning into a breathless 2 seconds, says Securities and Exchange Board of India. The regulator now wants to make this warning intelligible. From April, it will have to be said in 5 seconds.
This new rule is the audio equivalent of the old battle against fine print—to get firms and funds to use a minimum point size so that investors can easily read the risk factors.
But there is another way to hide critical information—spray investors with so much useless information that they will find it hard to find the pin-pricking needles in that haystack.
Many of the red herring prospectuses that come to our office run into hundreds of pages. The regulator should insist on short executive summaries written in plain English.