Take over Franklin Templeton management, investigate investments, stock brokers’ body asks govt

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Published: April 27, 2020 6:22:11 PM

ANMI has also accused the top management and trustees of Franklin Templeton MF of having remained "mute spectators of such blatant violation of Sebi regulations".

Franklin Templeton Mutual Fund closed six of its debt funds on Thursday.

Seeking urgent steps to safeguard investors’ interest due to Franklin Templeton Mutual Fund’s decision to shut down six debt schemes, stock brokers’ association ANMI has asked the government and capital markets regulator 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, has 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.

Franklin Templeton Mutual Fund closed six of its debt funds on Thursday, citing redemption pressures and lack of liquidity in the bond markets. These schemes are 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.

The decision has led to concerns about the fate of investments and mutual fund industry body AMFI (Association of Mutual Funds in India) rushed in on Friday to assuage the same.  In its letter dated April 26, ANMI said that closure of the six schemes by the fund house has sent shock waves to the entire mutual fund investing community.

The association 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. “Based on portfolio details published by FTMF of these six funds as on March 31, 2020, it appears that the profile of some of the companies FTMF chose to invest and the terms of those invested is questionable.

“When market slowdown gripped the economy, there was a substantial price erosion in low rated papers in the debt market, where FTMF had heavily invested forcing them to stop the redemption,” ANMI has alleged. Besides, substantial investment in low-rated papers, ANMI also alleged that the investment made by the fund house are in contravention to the Securities and Exchange Board of India (Sebi) norms.

With regard to Franklin Ultra Short Term Bond Fund, ANMI alleged that 70 per cent fund corpus has been invested by Franklin Templeton MF in securities, which are maturing after 1 to 9 years (2021 onwards up to 2029).  It further alleged that the investment pattern is completely in contravention with the Sebi norms, which mandate investment duration of 3-6 months for ultra short duration funds.

“FTMF has taken long dated securities that normally have lesser liquidity compared with short dated securities. These long dated securities with substantial investment in low rated papers is the real cause of illiquidity that has caused closure of six funds of FTMF,” it alleged.

ANMI has also accused the top management and trustees of Franklin Templeton MF of having remained “mute spectators of such blatant violation of Sebi regulations”. However, the fund house’s President Sanjay Sapre, in a note to investors on Monday, said these schemes followed a consistent investment strategy of investing in investment grade papers across the credit rating spectrum, that is to say, from AAA through to A rated papers.

This strategy served the schemes and its investors well till recent times and the schemes were able to generate significant cash flows even during the last six months, which were more turbulent times for the credit markets, he said.

On Friday also, ANMI had urged Finance Ministry and Sebi to take swift action for protecting the hard-earned savings of lakhs of investors who had invested in Franklin Templeton MF. Besides, it had suggested that an expert committee of mutual fund professionals should be formed to determine the precise problem in Franklin Templeton MF debt schemes.

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