Planning to invest in the capital market after seeing a celebrity endorsement? Here’s what you need to know first
Celebrity endorsement is a common marketing and promotional technique used by many companies operating in different sectors. As per research conducted in the year 2020, it has been found that celebrity endorsements have a positive influence on consumer decision-making through cognition. With SEBI allowing industry-level celebrity endorsement for mutual funds in 2018, AMC (Asset Management Companies) have received another dimension to promote and advertise the ‘concept’ of mutual fund to investors on a large scale. Stockbrokers are not allowed to hire celebrities for endorsements as yet. However, based on an international trend, it is anticipated that celebrity endorsement shall be extended to various other sectors within the financial services and investment management industries.
Introduction of celebrity endorsement with cross-media campaign (TV, Digital, Print and other mediums) had a rather positive impact on the overall popularity of mutual funds as the average AUM (Asset Under Management) has grown from Rs 16.29 trillion as on October 31, 2016 to ₹37.33 trillion as on October 31, 2021, more than 2 fold increase in a span of 5 years. While celebrity endorsement would definitely have had a role in popularizing mutual funds amongst investors, it must be duly noted that there are multiple other factors like new fund flows and MTM gains that have contributed to the growth in AUM. At the same time, the new fund flows may be due to celebrity endorsement.
The campaign managed by the Association of Mutual Funds in India (AMFI) focuses largely on roping in popular names in the field of cricket (including current and former stars) and the tone of campaigns is often educative. These campaigns underline some of the basic mantras of stock market investments such as the importance of long-term holdings, assessment of market risks, systematic investments, and starting early in an investment journey.
However, there are a few points that a rational investor should always take into consideration, before basing an investment decision on such celebrities’ endorsements. Some of the important points are discussed here:
Celebrities are simply meant to create awareness about a new offering
The overall usage of celebrities by financial institutions or industry on a whole is supposed to create awareness about a product or investment alternatives. An investor should make a decision based on factors such as risk appetite and investment targets rather than which celebrity has endorsed a financial product.
Celebrities are not your financial advisors
There’s a higher chance that celebrities endorsing financial instruments might not know about such investments as much as financial advisors. They are merely doing their job in exchange for a hefty fee. Even though there is nothing wrong with what these celebrities are doing, investors should remain rather unperturbed of the celebrity endorsement and invest specifically based on their research and assessment.
Responsibility of Fintechs
At the same time, it is the responsibility of the Fintech companies to be more responsible with celebrity endorsements. They should make sure that advertisements do not make any unrealistic claims, which may mislead or harm the investors in a long run. Fintech companies are well aware of the risks that come with certain investments, hence they should make sure that they incorporate the same in their messaging. These companies are also bound by the SEBI and exchange guidelines for their endorsements. It is for the best of investors and companies that all marketing and advertising material issued is within the guidelines.
Debt, Equity or Hybrid: An investor should make the final decision based on market analysis
An investment decision has to be undertaken by evaluating the pros and cons of the security alternative. Investment needs are distinct for each investor based on the goals and the level of risk he/she is willing to undertake. Mere endorsement by a celebrity does not change the ground facts. Hence, investors should be rather relying more on fundamental and technical analysis rather than taking account of the endorsement’s campaigns. An investor might want to put money in equity (small, large or mid-cap), debentures, hybrid funds or even F&O (Future and Options), the eventual decision has to be undertaken after comprehensive market analysis and not on a marketing campaign.
Investment in stock markets is subjected to market risks
Even though this line has been used extensively by several advertisements in the past, it remains relevant. Markets are largely volatile. There are many factors starting from economic conditions, cyclical changes, corporate actions, and actual company performance that eventually shape up the performance of a security listed on the exchange. Investors need to understand that in such a volatile market, celebrity endorsement means little and hence it must not affect overall decision-making.
Summing Up
In the context of India, SEBI has recently liberalised a number of regulations, based on which industry-wise celebrity endorsement of mutual funds is now allowed. Optimists are of the view that similar trends might be seen in the context of other security investments in the future. Based on international trends, one could expect celebrities to endorse specific fintech companies offerings and securities in the future. However, for a rational investor looking forward to investing in stock markets for the first time or expanding his/her portfolio, celebrity endorsements should only work as an awareness factor about any new offering and must not influence investment decision-making in any manner.
However, just like other goods and services, these celebrities are merely doing their job of creating awareness about an allocated industry. An investor should always consider the importance of technical and fundamental analysis of the securities market and celebrity endorsements should not affect investment-related decision making in any manner.
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About the author:
Prabhakar Tiwari, Chief Growth Officer, Angel One