Popular online distribution portal Paisa Bazaar's latest advertisements featuring Akshay Kumar to promote mutual funds have come under regulatory glare.
Sources said industry body Association of Mutual Funds in India (AMFI) had directed Paisa Bazaar to seek an approval from markets regulator Securities and Exchange Board of India (Sebi) for commercials featuring celebrities. However, the ads have already gone live on popular social media platforms.
Paisa Bazaar and affiliate Policy Bazaar are big on television advertisements and make use of brand ambassadors. Paisa Bazaar, which recently forayed into mutual fund distribution, has come out with a 20-second video clip featuring Bollywood actor Akshay Kumar. The ad, which talks about the benefits of investing in direct plans, has already got 1.6 million views on Youtube.
Industry players said that left unchecked, such communications can have serious ramifications for the industry.
"If proactive steps are not taken to address this, it could lead to a dangerous precedent for an industry which is seeing huge investor interest from global funds that are chasing big returns for their investments," said AK Narayan, former president of IFA Galaxy, a Chennai-based IFA association.
An earlier Paisa Bazaar commercial, launched in January, had made the claim that direct plans are the secret to higher returns as they save on distributor commissions. However, this ad didn't have any celebrity endorsement.
Just a week back, G Mahalingam, whole-time director, Sebi, had reiterated that the Rs 23-trillion MF industry needs to be cautious while spending big bucks on advertisement as investors might get misled.
The ad featuring Kumar has created quite a furore among the distributor community, which earns its income through regular plans.
"As individual distributors or IFAs, we cannot compete with the private equity-backed start-ups like Policy Bazaar or Paisa Bazaar, which have huge piles of cash to burn," said a distributor on the condition of anonymity. They added that retail clients, unlike institutional clients, need hand-holding and shouldn't be pushed towards direct plans just because they can save a couple of percentages in distributor commissions.
In a circular issued last year, Sebi had categorically stated that celebrity endorsements can only be done at an industry level for the purpose of increasing awareness of mutual funds as a financial product category. However, such endorsement should not promote interests of any one particular entity.
Sebi is not averse to direct plans. It had even recently asked industry body AMFI to promote direct plans as a low-cost alternative to regular plans. However, it is unlikely that Sebi will make an exemption for a single entity to use celebrity endorsements.
Sources said that Sebi was already cognisant of this development and was mulling what action needs to be taken. Paisa Bazaar's ad could prompt Sebi to issue clarity on the issue and it might even penalise the erring entity, said experts.
Recently, Policy Bazaar, along with Paisa Bazaar, secured $238 million (Rs 16 billion) in equity financing led by SoftBank, the world's largest technology investor.
Individual distributors are already feeling the heat with the impending entry of Alibaba-backed PayTM. Another distributor said that if the likes of PayTM were allowed to use celebrity endorsements, it would be difficult for individual distributors to survive.
Paisa Bazaar is yet to respond to Business Standard's queries.