BACKGROUND
The Capital market regulator Securities and Exchange Board of India (SEBI) has found serious lapses in the way Franklin Templeton India mutual fund managed the six debt funds that it wound up suddenly in April 2020.
The Franklin Templeton Trustee Services Pvt. Ltd. had inter alia informed the concerned unitholder(s) that it had decided to wind up the following schemes of FT–MF pursuant to the provisions of Regulation 39(2)(a) of the SEBI (Mutual Funds) Regulations, 1996 viz.:
i. Franklin India Ultra Short Fund/Ultra Short Bond Fund;
ii. Franklin India Low Duration Fund;
iii. Franklin India Short Term Income Fund/Plan;
iv. Franklin India Income Opportunities Fund;
v. Franklin India Dynamic Accrual Fund and
vi. Franklin India Credit Risk Fund.
SEBI, in its investigation, found that Franklin Templeton did not follow the scheme categorisation in the right spirit. In 2018, SEBI had laid down 36 mutual fund categories, each were given a boundary within which schemes were asked to operate. In its Templeton order, SEBI observed that Franklin Templeton had replicated high-risk strategies across several of its schemes. It also found that in this period, as the debt market crisis was brewing up, the fund management did not exercise the exit options in illiquid securities, despite an emerging liquidity crisis.
THE ORDER
Refund: Franklin Templeton to refund investment management and advisory fees collected from June 4, 2018, till April 23, 2020, with respect to the six wound-up debt schemes along with simple interest at the rate of 12 per annum It has instructed the fund house to return fund management fees worth Rs 451.63 crore to the investors of the six debt funds. Plus, it has also levied a 12 per cent interest fee on this amount, which sums up the total disgorged fee to Rs 512.50 crore.
Bar from launching new scheme: The market regulator SEBI has barred Franklin Templeton Asset Management (India) from launching new debt schemes for two years.
Penalty: SEBI also imposed a ₹5 crore penalty on the asset management company, which is to be paid within 45 days from the date of this Order. Further, in respect of the category of the six debt schemes inspected under winding up, the prohibition on launching of new debt scheme(s) shall come into effect from the date on which the said schemes cease to exist as per Regulation 42 of the Mutual Funds Regulations.
STATEMENT ISSUED BY FRANKLIN TEMPLETON
In a statement published in online news platforms, the fund house says that it will appeal against the SEBI order. “We strongly disagree with the findings in the SEBI order and intend to file an appeal with the Honourable Securities Appellate Tribunal“, says the Franklin Templeton spokesperson. “We place great emphasis on compliance and believe that we have always acted in the best interest of unitholders and in accordance with regulations.”, the spokesperson added.
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