In respect of Birla Sunlife Mutual Fund and Birla Sunlife Asset Management Company Limited and its Chief Executive Officer

ORDER DIRECTIONS UNDER SECTIONS 11 AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATIONS 30, 75 AND 76 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS) REGULATIONS, 1996 IN RESPECT OF BIRLA SUNLIFE MUTUAL FUND AND BIRLA SUNLIFE ASSET MANAGEMENT COMPANY LIMITED AND ITS CHIEF EXECUTIVE OFFICER Date of hearing: October 14, 2009 Appearance: For Birla Sunlife Mutual Fund, Birla Sunlife Asset Management Company Limited and its Chief Executive Officer: Mr. A. Balasubramanian, Chief Executive Officer Mr. Rajiv Joshi, Compliance Officer

For the Securities and Exchange Board of India: Ms. Asha Shetty, Deputy General Manager Mr. Sahil Malik, Assistant General Manager Mr. T. Vinay Rajneesh, Legal Officer Ms. Chhavi Sinha, Legal Officer

1. The Securities and Exchange Board of India (hereinafter referred to as SEBI), on noticing that the advertisement in respect of “Birla Sunlife Frontlife Equity Fund”, issued by Birla Sunlife Mutual fund (hereinafter referred to as BMF) in various newspapers on June 13, 2009 and through hoardings at 16 locations in Mumbai and 6 locations in Delhi were not in conformity with the requirements specified in VIth Schedule to the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 (hereinafter referred to as the Mutual Funds Regulations) and the SEBI Circular dated June 5, 2000, pointed out the deficiencies to BMF. The said advertisements were subsequently withdrawn by BMF. Thereafter, BMF had filed revised advertisements with SEBI on July 17,

2009. It was prima facie found that the revised advertisements were not in conformity with clauses 2(3) and 2(5) of Section III of SEBI Circular dated June 5, 2000. It was noticed that the revised advertisements were published between July 17-23, 2009 in 13 different newspapers and that the hoardings containing the revised advertisements were displayed at 136 sites in 16 cities across the country between July 16-18, 2009. It was alleged that BMF and Birla Sunlife Asset Management Company Limited (hereinafter referred to as BSAMCL) have violated the SEBI Circular dated June 5, 2000. It was also alleged that the Chief Executive Officer of BSAMCL had failed to ensure that BMF had complied with all the provisions of the guidelines, circulars issued in this regard from time to time, prima facie in violation of Regulation 25(6A) of the Mutual Funds Regulations. Thereafter, a notice dated August 3, 2009 was issued by SEBI advising BMF, BSAML and its Chief Executive Officer to show cause as to why appropriate action should not be taken against them for the aforesaid violation. Pursuant to the said notice, BSAMCL vide letter dated August 18, 2009 made its submissions. Subsequently, vide letter dated August 25, 2009, BSAMCL requested SEBI to consider the said submissions on behalf of its Chief Executive Officer also. The submissions of BMF are being considered in the later part of this Order.

2. Thereafter, an opportunity of personal hearing was granted to the aforesaid entities on October 14, 2009, wherein, Mr. A. Balasubramanian (Chief Executive Officer) made submissions on behalf of BMF and BSAML before me in line of its earlier reply dated August 18, 2009 and August 25, 2009. Mr. Rajiv Joshi, Compliance Officer, was also present in the hearing.

3. I have considered the oral as well as the written submissions made by BMF and BSAML and other relevant material available on record. It was alleged that it had failed to comply with the requirement of advertising the compounded annualised yield and that it had failed to clarify in the advertisement that the calculation of returns shall assume that all pay outs during the period have been reinvested in the units of the scheme at the then prevailing Net Asset Value, as required under clause 2 (3) and (5) of Section III of the ‘Guidelines for Advertisements by Mutual Funds’ issued vide SEBI Circular no. MFD/CIR/4/51/2000 dated June 5, 2000. The contention of the noticees is that the intention was to convey in simple terms growth of the scheme over a period of seven years. According to them, the statement was simple and clear. They also stated that immediately after “520% growth in 7 years”, they added “past performance may or may not be sustained in the future”. I cannot accept the contention of the noticees in this regard. It is a mandatory requirement that if any mutual fund uses performance figures in any of its advertisements, such advertisement ‘must’ adhere to the guidelines issued under the Guidelines issued vide the aforesaid circular dated June 5, 2000. The relevant clauses [2(3) and 2(5)] are reproduced hereinbelow for reference:

2 (3) Only compounded annualised yield can be advertised if the scheme has been in existence for more than 1 year. For the calculation of compounded annualised yield the procedure prescribed in the Standard Offer Document shall be followed. All performance calculations shall be based only on NAV and the payouts to the unit holders. The calculation of returns shall assume that all payouts during the period have been reinvested in the units of the scheme at the then prevailing NAV and it should be clarified in the advertisements. The type of plan/option of the scheme for which yield is advertised shall also be mentioned.

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2 (5) All advertisements displaying returns/yields must disclose in the main body of the advertisement, immediately after the returns/yields and in the same font, that past performance may or may not be sustained in future. If the returns/yield are unrealistically higher due to extraordinary circumstances (e.g. rise/fall in interest rates) may be clarified in the advertisement.

4. Thus, in terms of clause 2(3), as stated above, only Compounded Annualised Yield can be advertised if the scheme is in existence for more than 1 year. It is not in dispute that the scheme Birla Sunlife Frontlife Equity Fund has been in existence for more than a year. Thus, BMF is mandated to comply with the said requirement. The said Guidelines (Guidelines for advertisements by mutual funds) were issued in accordance with the provisions of the Mutual Funds Regulations. It is well settled that when something is to be done statutorily in a particular manner, it can only be done that way. Thus, the stipulations imposed under the said circular are statutory and mandatory in nature. However, in violations of the requirement (in respect of the Compounded Annualised Yield), BMF inter alia advertised the following “520% growth in 7 years

Past performance may or may not be sustained” This is clearly in contravention of the aforesaid said guidelines [2(3)]. I note that to mention the compounded annualised yield clearly in the advertisement is a statutory requirement and it should have been displayed in the manner prescribed in the aforesaid Circular. Moreover, the Advertisement Code and the Advertisement Guidelines were primarily issued to ensure that the investors get true, fair and clear information about the scheme. The intention or the reason behind the same was that the advertisement is not designed in content and format or in print as to likely to be misunderstood or likely to disguise the significance of any statement. Such measures have been introduced towards investor protection and the non-compliance cannot be ignored as a trivial failure.

5. I also note that BMF in its advertisement failed to disclose that the calculation of returns shall assume that all payouts during the period have been reinvested in the units of the scheme at the then prevailing Net Assey Value.

The noticees contended that the cumulative yield was in respect of the growth option and thus reinvestment at prevailing Net Asset Value was not applicable. It was further submitted that Birla Sunlife Frontline Equity Fund, is an Open Ended Growth Scheme. However, this does not mean that these disclosures are of Growth Options and not of any other option like Dividend Payment. I further note that the font size of the statutory disclaimer “past performance may or may not be sustained in future” is different from the font size of the returns/yield displayed in the advertisement. This is again in violation of Clause 2(5) of the aforesaid Guidelines. I also note that BMF withdrew the impugned advertisement. Thus, BMF and BSAML have contravened the aforesaid SEBI Circular. Consequently, the Chief Executive Officer of BSAML has violated Regulation 25(6A) of the Mutual Funds Regulations.

6. In view of the foregoing, in exercise of the powers conferred upon me under Sections 11(1) and 11B of the Securities and Exchange Board of India Act, 1992 read with Section 19 thereof Regulation 75 and Regulation 76 of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, I hereby direct Birla Sunlife Mutual fund, Birla Sunlife Asset Management Company Limited and its Chief Executive Officer to ensure that they abide strictly by the stipulations on advertisements by mutual funds, issued by Securities and Exchange Board of India, both in letter and spirit.

DR.K.M.ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA PLACE: MUMBAI DATE: FEBRUARY 20, 2010