Return and Performance Claims: What May Be Shown
A regulated arrangement may show what happened, over stated periods, with stated caveats, and it must show them together rather than nearby. A disclosure exists so that a figure cannot be shown on its own. Certainty about a future is the one thing nobody can supply, so wording that asserts it is treated as a warning rather than a promise.
Three matters are already settled: a return cannot be promised, a certain sounding number is a warning rather than a comfort, and a disclosure records some matters while fixing none. One difficulty has not been named yet, and it is the difficulty that makes the other three hard to use in the moment they are needed. The two documents a reader is choosing between are almost never an honest one and a dishonest one. The two documents are a constrained one and an unconstrained one, and the unconstrained one reads better. Not sometimes. Structurally, and every time.
Everything that makes the constrained document honest is a thing that makes it sound worse. The period makes it narrower. The caveat makes it weaker. The charges make the number smaller. The statement that value can fall makes it frightening. Four true things, four unpleasant reading experiences, all of them attached to the document that is behaving. Meanwhile nobody is obliging the other document to carry any of those, and so it arrives short, confident and clean. A reader who compares the two on how they read will pick the wrong one, and will pick it for a reason that feels like judgement.
The Bhosale household, invented for this walkthrough, carries the arithmetic. Meghna Bhosale earns Rs 46,000/- a month gross and takes home Rs 39,800/-, Ashok Bhosale runs a tailoring counter, their daughter Ira is at school, and Rs 42,770/- leaves the household in an ordinary month. On an invented 14 September, Ashok answered a telephone call and Rs 18,000/- left in five minutes. The buffer fell from Rs 31,320/- to Rs 13,320/-. In months of committed spending, 0.73 down to 0.31. The money has not come back. A smaller and stranger fact matters more here: the household holds no shares, no fund and no monthly investment plan, and has never taken advice from anybody, and it still meets performance claims constantly, in messages, on screens, in conversations at the counter. Everybody meets them. Holding nothing is not protection from reading.
What may a regulated arrangement actually show?
What a Performance Claim may show, and what it cannot
A performance claimA statement about what happened over a stated period. It is a record of a past, never a statement about a future. is a statement about what happened. A performance claim is nothing else. Something was worth one amount at one moment and a different amount at a later moment, and the claim reports the difference. A claim is a historical record, in the same way that a shop's takings for last April are a historical record. The claim carries exactly as much information about next April as the takings do. Some, in other words, and some is not the same as a statement about next April.
Ashok knows this shape without any of the vocabulary. He reconciles his own takings, so asked what the counter did last Diwali he can answer to the rupee. Asked what it will do this Diwali, he says what he hopes and then, unprompted, lists the things that could change it: whether the wedding season lands early, whether the cloth supplier holds his price, whether the shop two doors down reopens. He does not confuse the two questions. He would find it odd to be asked to. Then the same person reads a figure on a screen with a confident sentence beside it, and the two questions collapse into one. The screen has removed every one of the qualifications he would have supplied himself.
So the first thing a claim may show is a figure. The second is the stated periodThe stretch of time a figure covers. Outside that stretch the figure says nothing at all, which is why the stretch has to be named. it covers, and the period is not a formality. A rate of change with no time in it is an incomplete sentence, so a figure with no period attached is not a weak claim but no claim at all. One built specimen serves throughout. An amount of Rs 1,00,000/- went into an arrangement at the start of a four year stretch, and at the end of that stretch it stood at Rs 1,52,000/-. The gain is Rs 52,000/-, or 52 per cent in total. Spread evenly across the four years that is about 11.0 per cent a year annualisedSpread evenly across the years, so a four year total becomes a per year figure that would compound to the same end value..
Now notice what that figure does not contain. The figure does not contain the path. The same four years held a moment when the Rs 1,00,000/- was worth Rs 87,400/-, a fall of 12.6 per cent below what went in, and a household watching that number in that month would not have described the arrangement as doing 11.0 per cent a year. From that low point the remaining two years ran at about 31.9 per cent a year. Nobody should carry that figure forward either, and it is exactly the sort of figure that gets carried forward when somebody is allowed to choose which stretch to report.
The shape of what may be shown is now complete. A figure, and the stretch it belongs to, and the two of them treated as one object rather than as a number with a note near it. A performance claim is a record of a past, and the period is not a caveat attached to the record, it is part of what the record says. Stripping the period out does not make the claim shorter. Stripping it out makes the claim into a different kind of sentence, one that seems to describe the arrangement in general rather than the arrangement between two dates.
Setting aside how it is worded, what does a performance claim actually state?
What must be shown alongside the figure, and why together rather than nearby?
Four other things travel with a figure in a document written by somebody under obligations. The first is the statement that what happened over the stated stretch does not establish what happens after it. The second is the charges that were taken off before the figure was arrived at. The third is the plain statement that the value can fall. The fourth is the basis of calculationWhat was counted to arrive at a figure: which values were used, what was assumed, and what was left out of the sum., meaning what was counted, what was assumed, and what was left out.
Each of those is a caveatA limit stated together with a figure rather than somewhere near it. Stated near it, it stops being a limit and becomes a footnote., and the word caveat does a lot of damage here. The word makes them sound like decoration around the real content. Decoration is exactly what they are not. Take the charges. The invented figure of about 11.0 per cent a year is what was left after charges of 1.5 per cent of value a year had been taken off. Before those charges, the same four years would have ended at Rs 1,61,473/- rather than Rs 1,52,000/-. Untouched by charges the arrangement ran at about 12.7 per cent a year. The charges therefore account for Rs 9,473/- of a Rs 1,00,000/- holding over four years. Rs 9,473/- is more than eighteen per cent of the entire Rs 52,000/- gain.
Now the harder half of the question. Why must those four things sit with the figure rather than somewhere else in the same document? The answer is almost embarrassingly simple. A figure that can be read on its own will be read on its own, and a figure read on its own is exactly the thing the whole arrangement exists to prevent. Context that has been moved to the bottom of the sheet, or to a second screen, or to a line in a smaller size under a chart, is not context. Moved context is a separate document that happens to be printed nearby, and no reader in the world assembles two documents in their head before forming an impression.
There is a household version of this that everybody has met. A wedding caterer quotes a price for two hundred plates. At the bottom of the quotation, in a paragraph nobody reads at the time, sit the service charge, the charge for extra hours past eleven, and the note that the price holds only if the numbers are confirmed a fortnight ahead. Every one of those is on the paper. Every one of them is also, in practice, invisible. The number at the top is a complete thought and the paragraph at the bottom is a different one. Nobody in that story is dishonest. The structure of the quotation did the work.
Every required word is present in the document, but the four companions sit at the bottom in a smaller size. Why does that not do the job?
What is a Regulated Disclosure actually doing?
What a Regulated Disclosure is for, once the paperwork is stripped away
Here is the sentence that most people never get told, and it reframes every long document they have ever resented. A regulated disclosureThe material that has to accompany a figure so that the figure cannot be shown by itself. Its purpose is a constraint on the writer, not a briefing for the reader. is not primarily a briefing for the reader. A disclosure is a constraint on the writer. Its job is to make certain things impossible to leave out, and the reason it reads like an obligation being discharged is that an obligation is precisely what is being discharged.
The distinction explains almost everything people find maddening about such documents. Disclosures are long because the list of things that cannot be left out is long. They are flat because they were written to be complete rather than to be enjoyed, and they repeat themselves because different parts of the same obligation land in different places. And they are joyless because nothing in the exercise rewards charm. A disclosure is a fence around what a writer may say, and a fence is a bad thing to read and a good thing to be standing behind.
Ashok has the tailoring version of this on his own counter. When a customer asks for a suit by Thursday, he says Thursday, and then he says what he always says: Thursday if the lining arrives Tuesday, and if it does not, Saturday, and here is what it will cost either way. The shop two streets over says Thursday and stops. The second answer is a better answer to listen to. Ashok's is the one that will still be true on Thursday. Nobody chooses a tailor on that basis. There is the whole problem in one sentence.
One consequence of that framing is worth stating on its own. A complete disclosure establishes that somebody had duties and discharged them. A complete disclosure does not establish that the arrangement is good, or safe, or suitable, or well run. Whether an arrangement suits a household is a separate question that a disclosure was never built to answer, and suitability is the exact place where readers who have absorbed everything else still go wrong.
How do the two sides look when placed beside each other?
Return Promise vs Regulated Disclosure: what each one is doing
Now the comparison itself. Both specimens below describe the same arrangement over the same stretch. Taken in order they provoke a reaction worth noticing rather than suppressing, and the reaction is the finding.
Over the four years ended on an invented 31 March, the arrangement returned about 11.0 per cent a year. The four year stretch is the whole of what this figure covers, and the figure describes nothing outside it. Performance over that stretch does not establish what happens next. The figure is arrived at after charges of 1.5 per cent of value a year were deducted; before those charges the same stretch works out at about 12.7 per cent a year, a difference of Rs 9,473/- on the Rs 1,00,000/- that went in. The value can fall, and inside this same stretch it did, to Rs 87,400/- against the Rs 1,00,000/- that went in. The figure is worked out from the value at the start of the stretch to the value at the end of it, with nothing added and nothing taken out in between.
The second specimen states a single number, 11 per cent a year, and describes it as assured. Nobody is in a position to describe any arrangement that way. The specimen is a shape to recognise, never a claim anybody should credit.
The question is which one a reader would rather have received. A constrained document sits beside an unconstrained claimA claim made by somebody under no obligation to carry limits with it, which reads better for exactly that reason., and the difference in how they read is the whole of what follows. Not which one deserves approval, but which one is the more pleasant read. Specimen B is four seconds long, it answers the question actually asked, and it leaves a clean impression that can be acted on. Specimen A takes a minute, contradicts itself twice, and leaves a slightly worse feeling about the arrangement than the reader had before starting. The worse feeling is the correct one, and correct is not the same as enjoyable.
Every single property that makes Specimen A honest is a property that makes it read worse, and every single property that makes Specimen B attractive is a property that only somebody with no obligations could supply. The pattern is not a coincidence and not a failure of writing skill. It is the arithmetic of constraint. A writer who must state the stretch has a narrower claim than one who need not. A writer who must state that the past establishes nothing has a weaker claim. A writer who must state the charges has a smaller number. A writer who must state that value can fall has a frightening claim. Four obligations, four reductions in appeal, applied to exactly one of the two writers.
There is one more asymmetry hiding underneath, and it is the nastiest part. Specimen A took work. Somebody had to know the charges, compute the figure before and after them, find the low point, and describe the basis without overclaiming. Specimen B took no work at all. There was nothing to be right about. So the document that cost more to produce arrives looking cheaper, and the document that cost nothing arrives looking authoritative. Effort and appearance run in opposite directions here. In nearly every other kind of document a household meets, the two run together.
Ahead of the control below: two claims about the same arrangement, one constrained and one not. Which of them reads better?
Add the context back to a bare figure, one element at a time
The control adds the five elements to a bare figure in the order a document would carry them. Two things move in opposite directions: what a reader can establish from the claim, and how well the claim reads. The default is zero elements. A bare figure is what is actually met in practice.
Zero elements. The claim is the bare figure of 11.0 per cent a year and nothing else, so it cannot be checked, cannot be placed in time and cannot be compared with anything. An unconstrained claim looks exactly like this, and it is the version actually shown in practice.
Educational illustration. The arrangement turned Rs 1,00,000/- into Rs 1,52,000/- over a four year stretch. Spread evenly that is about 11.0 per cent a year after charges of 1.5 per cent of value a year, and about 12.7 per cent a year before them, a difference of Rs 9,473/-. Inside that stretch the value fell to Rs 87,400/-.
Why is an assertion of certainty about an outcome treated as a warning?
Because it cannot be true, and because the person saying it knows the reason it cannot be true better than the listener does. Nobody holds the future. Not a large institution, not a careful one, not a well run one, not one with a long record. The future of a value is made out of things that have not happened yet, and no amount of expertise converts an unknown into a known. So an assertion of certainty is never a statement about the arrangement. An assertion of certainty is always a statement about the speaker, specifically about how little they expect to be held to what they said.
The point is worth turning over slowly. Such wording is treated as a signal rather than as a claim to be checked for exactly this reason. If a sentence cannot be true, then arguing about whether it is true is the wrong activity. The useful question is a different one: what kind of person or arrangement produces a sentence that cannot be true, and what their willingness to produce it says about everything else they have said. The willingness is information, and it is available immediately, before anything about what is being described has been understood.
Four such wordings are worth being able to recognise on sight. There is no safe way to display one of these on its own, so each is set out together with the reason it cannot stand.
Notice what those four have in common. Tone is not it. Two of them can be delivered quietly and modestly. One of them can be delivered by somebody who genuinely believes it. The four share a grammatical property: each contains a future in the indicative. Each says will where the honest version says has, or may, or over the stretch ended. The tense is the tell, not the volume. HedgingWriting that carries its own limits inside it: may, can, over the stretch ended, on this basis. It is a property of the grammar rather than of the subject. is simply the absence of that future tense, and its presence or absence can be read faster than anything else in a document. A calm sentence about what will happen is exactly as unsupportable as a loud one, and more dangerous besides. Calm reads as competence.
Why is an assertion of certainty about a future outcome treated as a warning rather than as a claim to be checked?
How are the two told apart in practice?
Three signs, and the useful thing about all three is that they are visible before a single word of substance has been understood. Knowing the arrangement does not come into it. Nothing has to be evaluated. None of the three signs is a judgement of quality. All three read the shape of the document, and reading the shape takes a few seconds and requires no knowledge of the subject at all.
Name one of the three signs that is visible before a word of substance has been read.
The failure: reading confidence as competence, and then reading hedging as quality
Here is the mistake, and everything in ordinary life trains it, so nobody should feel foolish about making it. Everywhere else, confidence is evidence. The surgeon who is sure has usually done it a thousand times. The electrician who says he will have it back on in twenty minutes usually will. The teacher who answers without hesitating usually knows. Across almost every encounter a person has, the willingness to commit to an answer correlates with the ability to deliver it, and that correlation is real and is worth relying on.
Then a household walks into the one area where the correlation runs backwards. Confidence about a future value is available only to somebody who will not be held to it, so the assurance in a claim measures how little the writer is obliged to stand behind. Everywhere else in life, confidence means the exact opposite. Nothing in a person's experience prepares them for a place where the signal inverts. The failure is not personal. A correctly learned rule is being applied in the one place it does not hold. Misapplying it is a different thing from carelessness, and trying harder does not repair it.
For a reader holding something taken on because a sentence sounded certain, that is the finding, and it is not a consolation prize. The material was built to be sorted exactly that way. The people who write Specimen B know precisely what Specimen A costs its author, and they are not competing on honesty, they are competing on how the two read, on a field where they have removed their own handicap. A person who read confidently written material and found it more convincing was reading correctly by every rule they had ever been given.
A claim sounds extremely confident about what is going to happen. What is that confidence actually a measure of?
Now the second failure, the first one over-corrected. The correction goes wrong in a way that is just as expensive. Having learned that hedging marks a constrained writer, a reader starts treating hedging as a mark of quality. Long document, many caveats, dense language, therefore a good arrangement. The over-correction is the same error running in the other direction, and it will lead somebody into a thoroughly disclosed thing that does not fit them at all.
Think about what hedging actually establishes. Hedging establishes that somebody had duties. It establishes that a writer was constrainedLimited in what may be stated, which reliably makes the writing worse and says nothing about the thing being written about. when they sat down. Hedging does not establish that the arrangement performs well, that the charges are reasonable, that the risks are ones this household can carry, or that any of it belongs anywhere near a household with Rs 13,320/- left in its buffer. SuitabilityWhether a particular thing fits a particular household, given what that household earns, holds, owes and needs. No disclosure addresses it. is a question about the fit between a thing and a household, and a disclosure is a document about the writer's duties. The two are not adjacent questions. They come from different directions entirely.
A document is dense, long and full of caveats. Is the arrangement it describes therefore a good one?
What does none of this establish?
The largest question in the whole subject is the one no document on either side of the comparison answers. Does this thing fit this household. Not is the claim honest, not was the writer constrained, not were the charges disclosed. Does the thing belong in a household with this income, these commitments, this much put by, these people depending on it, and this list of things it will need money for and when.
The Bhosale household is the case in point. Rs 39,800/- comes in from Meghna's salary and something further from Ashok's counter. Rs 42,770/- goes out in an ordinary month. There is Rs 13,320/- in the buffer after the Rs 18,000/- that left on 14 September, or 0.31 months of committed spending. There is a recurring deposit, a public provident fund balance, gold at the household's own estimate and a two-wheeler. Now suppose that household receives a perfectly complete, perfectly constrained, entirely honest Specimen A. Every word of it is true and it still does not contain a single fact about whether this household should be anywhere near this arrangement.
The gap is not a defect that better disclosure would close. A disclosure is written once, about an arrangement, for everybody, and suitability is a question about one household on one day, so the gap is structural. No document written for everybody can answer a question about one household, and any document that claims to has just revealed something about its author.
The disclosure in hand is complete, correct and constrained. Does the arrangement suit the household?
How somebody who checks claims for a living actually reads one
People are employed to look at material before it is published, and watching how they read is more instructive than any list of rules. The first thing they do is not read. They look. The checker finds the largest number in the material and covers everything else with a hand, and then asks whether what is left standing is a complete sentence. If the number survives on its own as an impression, the material has a problem no amount of correct small print will fix. The impression is what travels.
The second thing they do is a lifting test. The checker imagines the figure being screenshotted, forwarded, read aloud on a call, or repeated by somebody who read it once. Whatever survives that journey is the real claim. Everything that falls off along the way was decoration, however true it was. The real claim is whatever remains after the material has been through a person who is moving fast, and material is written well or badly according to what is left at that point.
The third thing is a tense sweep. The checker reads for verbs and nothing else, looking for a future in the indicative anywhere in the material, and a single one is treated as a finding rather than as a wording preference. The sweep takes about a minute on a long document and catches most of what matters. Borrowing it costs a minute and no expertise.
The household version costs nothing. Three passes: covering the number and asking what is left, picturing the claim repeated by a cousin who read it once and asking what the cousin would say, and reading the verbs. None of the three requires deciding whether anything is any good. Deciding is the part that actually needs help, and no reading of the material can supply it.
Where does the household stand at the end of this?
Exactly where it stood at the start. The honest answer is not a better one. The Rs 18,000/- has not come back, and most of the time it does not. The household has a record, a report made in time, and a set of habits that has changed. Eleven minutes passed between the first transfer and the moment Ashok knew. Eleven minutes is fast; most people take much longer, and the reason has nothing to do with intelligence, education or attention. The call was built to produce compliance and it is good at it. He runs a counter, does his own accounts and reconciles his own takings, and it worked on him anyway.
The same sentence applies to everything in this guide. Specimen B is built to read better and it is good at it. Nobody sorts these two documents correctly by feel. Feel is what the second one is engineered against. The method that works instead is mechanical: covering the number, reading the verbs, looking for the stretch, looking for anything unflattering. None of that requires being cleverer than the material. The method requires reading the material in some way other than the way it is asking to be read.
And a last note on what the sorting buys. Getting this right does not produce a decision. Getting it right produces a shorter list of things worth spending a decision on. A shorter list is a much smaller and much more truthful claim than the one people expect from material of this kind. The decision itself needs facts about the household that live in that house and nowhere else.
India, and what has to be confirmed at the source
The constraint asymmetry and the three observable signs above hold anywhere. Both are properties of what obligations do to writing rather than properties of any one set of rules. Everything else is local, and it is not a small everything else.
The regulator for each kind of activity sets separately what a performance figure may show, what has to accompany it, how it must be presented, over which stretches, and on what basis, and the settings change. In India, arrangements in the securities market sit with the Securities and Exchange Board of India at sebi.gov.in. Insurance arrangements sit with the Insurance Regulatory and Development Authority of India at irdai.gov.in. Where a banking product is involved, the Reserve Bank of India at rbi.org.in is the relevant authority.
Requirements, thresholds, periods, formats and penalties differ by activity and change over time. The obligations on a particular claim are a question for the relevant authority's own site and for the arrangement's own documents, and they must be confirmed there rather than taken from any general account.
Scope of this guide. The arithmetic above runs on a built specimen: Rs 1,00,000/- in, Rs 1,52,000/- out four years later, Rs 1,61,473/- before the Rs 9,473/- of charges, and a low point of Rs 87,400/- along the way. A real document supplies its own five numbers, and the reading of it is the same either way.
The four wordings named above are named only so that they can be recognised, and each carries its refusal in the same sentence.
Recovery is not the ordinary outcome. The Rs 18,000/- that left this household on 14 September has not come back, and most of the time such money does not come back. The loss was not obviously avoidable, a careful person would not necessarily have caught it, and noticing sooner was not available to anybody. Where a course of action is described, it is a thing to do next time and never a thing that should have been done last time.
Sources
| Source | Document | Site |
|---|---|---|
| Securities and Exchange Board of India | Investor information on performance and disclosure standards in the securities market | sebi.gov.in |
| Insurance Regulatory and Development Authority of India | Policyholder information on conduct and disclosure in insurance | irdai.gov.in |
| Reserve Bank of India | Customer information on banking products and conduct | rbi.org.in |
| Daniel Kahneman | Thinking, Fast and Slow, on judgement made under time pressure | Farrar, Straus and Giroux |
The Bhosale household, Meghna Bhosale, Ashok Bhosale and Ira Bhosale are invented.
Educational material. Not advice on any investment, tax, budget or market position.