Investors in Franklin Templeton’s other mutual fund schemes may not face immediate repercussions of SEBI’s order to refund money to the investors of six debt schemes that shut down.
Investors in Franklin Templeton’s other mutual fund schemes may not face immediate repercussions of SEBI’s order to refund money to the investors of six debt schemes that shut down. However, further investigation into employees of the fund house must be closely watched. “SEBI is also evaluating separately the conduct of certain Franklin Templeton employees. If SEBI finds their conduct to not be in compliance, it could have big implications,” Ajay Kejriwal, President, Choice Broking, told Financial Express Online. Earlier this week, SEBI directed Franklin Templeton India to return management and advisory fees worth Rs 512 crore to the investors of the six debt schemes. It also ordered the fund house to pay a Rs 5 crore fine.
Franklin Templeton strong enough to pay fine
“We do not know Franklin Templeton’s response yet,” Deepak Shenoy, Founder, Capital Mind, told Financial Express Online. “They have the money to pay, so they won’t go bankrupt. The question is about if they want to pay or not,” he added. With a strong parent firm in the US and over two decades of experience in India, market experts believe Franklin Templeton has strong books to cover their losses without paralysing their operations in the country, Deepak Shenoy said. Franklin Templeton began operations in India in 1996 and now has an asset under management of over Rs 80,000 crore in 73 funds.
Further investigation by SEBI crucial
Although the Rs 512 crore and the additional Rs 5 crore do not seem to be an immediate cause of worry for investors in other schemes at this juncture, Ajay Kejriwal of Choice Broking believes SEBI’s investigation into Franklin Templeton’s chief executive officer, chief compliance officer and the directors will be something to keenly watch. “I do not think investors should be concerned, as the market scenario drives profits and losses. We need to see if fund managers are personally involved,” he said. Kejriwal added that if SEBI finds fund managers of the six shut schemes to be in compliance with the law then other investors need not pay heed.
Further, Kejriwal added that if fund managers of Franklin Templeton are found to be in compliance with regulations, AMCs should be allowed some liberty. “Markets can go wrong and investment decisions can go in either direction, AMC should have the liberty of making those decisions if fund managers are found to be in compliance with regulations,” he added.
Franklin Templeton’s image to take a hit
While paying the fines and returning the advisory fee would not hurt Franklin Templeton much, a market expert said requesting anonymity that the real damage would be the image of the firm. He added that banks selling mutual fund schemes and independent advisors who have earlier advised Franklin Templeton might now be reluctant to tread on the same path after SEBI has found lapses in the company’s actions.
Why refund money?
In April 2020, Franklin Templeton India had abruptly shut six debt mutual fund schemes, citing redemption pressure. The six schemes were 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. This left investors with Rs 25,800 crore in lurch about getting their money back. Since then, Franklin Templeton India has returned Rs 14,572 crore to the investors in three tranches.
This week, SEBI, along with Franklin Templeton, also fined Vivek Kudva, former head of Asia Pacific (APAC) for Franklin Templeton, and his wife Roopa Kudva to the tune of Rs 7 crore. SEBI in a separate order said that the couple redeemed units of Franklin Templeton MF schemes while in possession of non-public information. Both Vivek Kudva and Roopa Kudva have been barred from the securities market for a period of one year.
Franklin Templeton response
Franklin Templeton has said that they “strongly disagree with the findings in the SEBI order” and intends to appeal the SEBI order at the Securities Appellate Tribunal (SAT). “We place great emphasis on compliance and believe that we have always acted in the best interest of unitholders and in accordance with regulations. Our commitment to India remains steadfast. As stated previously, the decision by the Trustee in April 2020 to wind up the funds was due to the severe market dislocation and illiquidity caused by the COVID-19 pandemic and was taken with the sole objective of preserving value for unitholders,” the fund house said.