Citing acute liquidity crunch due to the Covid-19 pandemic, Franklin Templeton on April 23, 2020 had announced the winding up of six of its debt schemes.
The fund provides exposure to a diversified basket of AAA rated CPSE Bonds and State Development Loans.
Having failed to address the grievances of investors aggrieved by the freezing of six of the debt funds of Franklin Templeton Mutual Fund (FTMF), the Association of Mutual Funds in India (AMFI) has now approached the Securities and Exchange Board of India (SEBI) to shield the Mutual Fund (MF) Company, after a First Information Report (FIR) has been filed against FTMF.
Citing acute liquidity crunch due to the Covid-19 pandemic, FTMF on April 23, 2020 had announced the winding up of six of its debt schemes, viz. Franklin India Low Duration Fund, Franklin India Ultra Short Bond Fund, Franklin India Short Term Income Plan, Franklin India Credit Risk Fund, Franklin India Dynamic Accrual Fund and Franklin India Income Opportunities Fund.
The action has stirred the confidence of investors as debt funds are considered relatively safe and people don’t hesitate to park their short-term money and emergency funds in such funds.
The Chennai Financial Markets & Accountability (CFMA), a society registered under the Tamil Nadu Societies Registration Act, 1975 with an objective of addressing public concerns in the areas of banking, insurance, financial or any other domain of community interest and to provide solution to the aggrieved parties, has filed the FIR against FTMF on September 25, 2020.
Earlier, taking cognizance of a public interest litigation (PIL) filed by CFMA and recognising that an amount of Rs 28,000 crore was at a risk of being written off, the Madras High Court on May 26, 2020 directed the SEBI to file its reply along with the status report on the actions taken by SEBI, along with issuing a notice to Franklin Templeton to respond to the allegations made in the PIL.
Concerned by the September 25, 2020 FIR, registered by the Economic Offences Wing (EOW) of Chennai police against Franklin Templeton Asset Management India Ltd (FTAMIL), Franklin Templeton Trustee Services Private Limited (FTTSPL) and their top management personnel, the AMFI has given a representation to the SEBI, requesting the market regulator to exercise its statutory powers to shield one of its members (i.e. FTMF) and to insulate the MF industry from any undesirable and unwarranted precedent.
In its representation, AMFI said, “The aforesaid FIR is unprecedented in the history of mutual funds in India, and all AMCs are concerned that bona-fide decisions and actions of mutual funds, which may go awry to various extraneous reasons, are translated into criminal action by non-expert bodies, even when an expert regulatory body has been established under an Act of Parliament, viz. SEBI Act, with vast jurisdiction containing administrative, civil and penal domains, thus setting up a dangerous and undesirable precedent.”
“The FIR will have a chillingly detrimental effect, particularly on the fund managers, who would constantly feel threatened and are jittery of being sued for their bona-fide decisions and actions if things go wrong due to factors beyond their control,” AMFI further said.
The freezing of debt funds is an unprecedented step taken by an AMC in India, and with the concerned authorities yet to address their grievances, recovery of the hard earned money of aggrieved investors still looks uncertain.