SEBI rebukes Franklin Templeton after CEO’s comments: ‘Focus on returning investors money’

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Published: May 8, 2020 11:11:41 AM

Market regulator SEBI, late Thursday night advised Franklin Templeton to focus on returning investor’s money after the fund house decided to wound up six of its debt mutual fund schemes.

Sebi in October 2019 in consultation with Amfi and after deliberations with Mutual Fund Advisory Committee (MFAC) had proposed calibrated reduction in limits for investment in unlisted securities in mutual fund schemes.The market regulator said that in order to address issues and improve transparency and disclosure of investments in debt securities made by mutual funds with money entrusted to them by investors, SEBI had constituted various working groups.

Market regulator Securities and Exchange Board of India (SEBI), late Thursday night advised Franklin Templeton to focus on returning investor’s money after the fund house decided to wound up six of its debt mutual fund schemes. The comments from SEBI came soon after Franklin Templeton’s President and CEO, Jennifer Johnson partly blamed a SEBI rule from 2019 for the eventual closing of the debt fund schemes. SEBI rebuked the claim made by Franklin Templeton and said that since the credit events of September 2018, a need was felt to change the regulatory framework for mutual funds to safeguard investors’ interest and maintain the robustness of their investments.

“It was observed that unlisted debt securities, particularly bespoke securities in which only a single investor invested, suffered from both forms of opaqueness: opaqueness of structure and true nature of risk on the one hand and lack of ongoing disclosure in respect of financials of the issuer on the other,” SEBI said. The market regulator said that in order to address issues and improve transparency and disclosure of investments in debt securities made by mutual funds with money entrusted to them by investors, SEBI had constituted various working groups.

The working groups constituted by SEBI, consisting of representatives from AMCs, industry and academia, who were to review the risk management framework with respect to liquid schemes and to review the existing practices on valuation of money market and debt securities. “Further, an internal working group was constituted to, inter-alia, review prudential norms for Mutual Funds for investment in various debt and money market instruments. The analysis along with recommendations of the working groups were placed in a meeting of Mutual Fund Advisory Committee (MFAC) held in June, 2019,”SEBI said.

The market’s regulator in the late evening press release said, “MFAC had made several recommendations for prudential norms for Investment in Debt and Money Market instruments by Mutual Funds including investments only in listed NCDs and Commercial Papers (CPs) in the interest of greater transparency and accountability.” The MFAC, led by former SBI boss Arundhati Bhattacharya also had Franklin Templeton’s India head, Sanjay Sapre on the committee, according to SEBI.

“Despite the regulations being clear, 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 said while asking franklin Templeton to focus on returning the money of investors as soon as possible=, but refrained from setting a timeline.

Franklin Templeton had earlier last month announced wounding up of six debt fund schemes and blocked redemptions indefinitely. The closed funds include — Franklin India Low Duration Fund, Dynamic Accrual Fund, Credit Risk Fund, Short Term Income Plan, Ultra Short Bond Fund and Income Opportunities Fund. Johnson, in an earning conference call had said that the 2019 order by SEBI orphaned one-third of its funds, which led to the eventual wounding up of the six schemes.

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