Franklin Templeton tries to calm investor fears: SEBI order not to hit other schemes, will move SAT

Franklin Templeton has said it disagrees with the findings in the Sebi’s order and has decided to file an appeal in Securities Appellate Tribunal (SAT).

Franklin Templeton AMC has clarified that the recent ban by capital markets regulator SEBI prohibiting it from launching new debt funds will not impact its other existing schemes. Earlier this week, SEBI imposed a Rs 5 crore penalty and asked the fund house to refund Rs 512 crore investment management and advisory fees, collected between June 4, 2018, and April 23, for the six wound-up debt schemes, including interest at 12% per annum. This amount will be utilised to repay unitholders, as per SEBI order.

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However, Franklin Templeton has said it disagrees with the findings in the Sebi’s order and has decided to file an appeal in Securities Appellate Tribunal (SAT). In an email sent to investors on June 8, 2021, Franklin Templeton AMC President Sanjay Sapre said that SEBI order does not impact the current monetisation process of the six debt schemes under winding up being undertaken by the liquidator. “The order also is not related to and has no impact on the other debt, equity, hybrid and offshore schemes managed by Franklin Templeton,” he said.

Franklin Templeton reiterated that the decision by the Trustee in April 2020 to wind up the funds was on the back of severe market dislocation and illiquidity caused by the COVID-19 pandemic and was taken to preserve value for unitholders. The six debt mutual funds schemes — Franklin India Low Duration Fund, Franklin India Short Term Income Fund, Franklin India Ultra Short Bond Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, and Franklin India Income Opportunities Fund — were shut last year due to redemption pressure and lack of liquidity in the bond market. These six schemes together had around Rs 25,800 crore as assets under management.

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Sapre, in the letter, said the six schemes under winding up have distributed Rs 14,572 crore to unitholders as of April 30, 2021, and an amount of Rs 3,205 crore is available for distribution as of June 4, 2021. After this distribution in the first week of June 2021, the total amount of disbursement would reach Rs 17,778 crore, amounting to 71 per cent of assets under management (AUM) as on April 23, 2020. He also added that Franklin Templeton’s immediate priority and focus remains on supporting the court appointed liquidator in liquidating the portfolio of the schemes under winding up and distributing monies to our unitholders at the earliest, while preserving value.

Sebi, in its order earlier this week, said it has found that Franklin Templeton Asset Management (India) Pvt Ltd has committed serious lapses/violations with regard to a scheme categorization (by replicating high-risk strategy across several schemes) and calculation of Macaulay duration (to push long term papers into short duration schemes). It also added that Franklin Templeton has committed violations in respect of non-exercise of exit options in the face of emerging liquidity crisis, securities valuation practices, risk management practices and investment related due diligence.