Last month, the fund house had closed six of its debt funds, citing redemption pressures and lack of liquidity in the bond markets.
Franklin Templeton Mutual Fund on Friday said it is making every effort to ensure an orderly and equitable exit to all investors affected by closure of six debt schemes, a day after it was asked by regulator sebi to focus on returning investors’ money at the earliest. The fund house also issued an apology to Sebi and said that comments of its top executive Jenny Johnson were wrongly interpreted, diluting her responses about the reason for winding up of schemes. Last month, the fund house had closed six of its debt funds, citing redemption pressures and lack of liquidity in the bond markets.
These schemes, together having an estimate amount of over Rs 25,000 crore assets under management, were Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.
In a notice on Friday, Franklin Templeton MF President Sanjay Sapre said the company would like to highlight that every possible option to avoid this difficult decision was considered, but it was concluded that this was the only viable option to protect value for investors in these funds. “Working closely with the trustees, the firm is committed to ensuring an orderly and equitable exit for all investors at the earliest possible time,” he added.
Franklin Templeton MF clarified that some media outlets in India have quoted Johnson out of context, “which diluted the essence of her responses”. The headlines and articles erroneously suggested that Johnson stated that Sebi’s guidelines on unlisted securities were the main reason for the decision to wind up these schemes.
This is neither factually correct, nor substantiated by the comments made during the conference call. We deeply regret any misunderstanding this may have caused, the fund house said. “We deeply regret any unintended slight this may have caused to the esteemed offices of Sebi whom we have always held in the highest regard and unconditionally apologise for the same,” it added.
Franklin Templeton MF said that the primary reason which forced the decision to wind up these six schemes was the severe market dislocation caused by the COVID-19 pandemic and related lockdown which led to severe market illiquidity particularly for papers rated below AAA, combined with heightened redemptions during this period.
On Thursday Sebi had asked Franklin Templeton MF to focus on returning money to investors at the earliest.
The regulator said “some mutual fund schemes” continued to invest in high risk and “opaque” debt securities despite the regulatory framework having been reviewed and amended for safeguarding investors” interest after credit risk events noticed since September 2018, which had led to challenges in the corporate bond market. Incidentally, these regulatory changes were implemented after taking into account suggestions made by Sebi’s Mutual Fund Advisory Committee, whose members at that time included Sapre, sources said.
“Some mutual fund schemes chose to have high concentrations of high risk, unlisted, opaque, bespoke, structured debt securities with low credit ratings and seem to have chosen not to rebalance their portfolios even during the almost 12 months available to them so far,” Sebi had said.
Seeking urgent steps to safeguard investors’ interest due to Franklin Templeton MF’s decision to shut down schemes, stock brokers’ association ANMI had even asked the government and Sebi to appoint a high-powered committee to take over the management of the fund house and examine its investment decision.
In a letter dated April 26 the Finance Ministry and Sebi, the Association of National Exchanges Members of India (ANMI), which represents 900 stock brokers, had also requested for steps to safeguard further erosion of investor wealth and to inform the investors of these six schemes in a time-bound manner about modalities for them getting back their investments.
The association had alleged that Franklin Templeton MF had heavily invested in low rated papers in the debt market and had also put money into several lesser known companies. Besides, substantial investment in low-rated papers, ANMI also alleged that the investment made by the fund house were in contravention to the Sebi norms.