If you have been keeping a track and recall reading my colleague Ms Divya Grover’s articles on Franklin Templeton Mutual Fund’s decision of winding down six schemes and the all previous updates; which involves:
- SEBI issued an audit notice to Franklin Templeton to provide information regarding the dealings of the six wound-up schemes, SEBI hired the services of chartered accountancy and forensic audit firm Chokshi & Chokshi for the assignment. The investigation report was expected to be submitted within 30 days.
- An investor group in Chennai moved to court seeking safeguard of nearly Rs 28,000 crore of investors’ money stuck in wound-up schemes. The Madras High Court has issued notice to SEBI asking it to file a status report on the action taken so far.
- And the FT on the verge of the e-voting process to be held between June 09 and June 11 and the unitholder meet on June 12. It had brought onboard partners to assist them with an orderly and equitable liquidation of the portfolio so that they can start to return the money soon.
Well, let me tell you the plot further thickened, as another set of investors filed a petition in the High Court of Gujarat alleging that winding up of the debt schemes by the fund house was illegal. Hence the Gujarat High Court had stayed the e-voting process for winding up of the fund house’s six debt schemes.
The e-voting was supposed to commence from June 9, 2020, and close on June 11, 2020. For this process, the AMC had appointed Kotak Mahindra Bank as an independent advisor to monetise the six debt schemes- 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.
However, the e-voting process got suspended as the High Court of Gujarat dismissed Franklin Templeton’s application plea seeking vacation of the stay on the e-voting process granted by the court.
As reported by the Economic times, in the order passed on June 8, 2020 the court said: “It has been rightly submitted by learned Senior Advocate Mr. Thakore that amidst the allegation of mismanagement of funds and fraud, the unit-holders would not be having the opportunity of informed decision making while casting the E-votes for the option given by the applicants. No winding-up process could be concluded without the consent of the unit-holders, as has been laid down in sub-regulation 15(c) of Regulation 18 of the Regulation. The Trustee shall have to obtain the prior consent of the unit-holders when a majority decide to windup or prematurely redeem the units. Thus, in view of the above provision of law, the interim injunction granted is confirmed till the forensic audit report comes in public domain.“
The Gujarat High Court’s stand taken is a firm step to help investors get a proper idea about their funds. As when the Madras High Court had issued notices to Franklin Templeton Mutual Fund and SEBI asking it to file a status report on the action taken so far, a proper update is yet to be given.
The capital market regulator’s probing decision was taken only after Franklin’s global chief, Jennifer Johnson, during a conference call with analysts partly blamed the winding up of six of its debt scheme on SEBI’s October 2019 rule.
If indeed collusion is established between the fund house and bond-issuing corporates and if any violation of a rule is discovered during the probe, then the fund house may face penal actions for not following ethical practices. It would also raise concerns about the management of the other schemes of the fund house and the reputation of the AMC would be at stake.
So, it is important that investors get clarity about whether there had been foul play involved in the management of their hard-earned money. Debt fund investment has burned holes in investors’ pockets already. And this fund house decision of winding up of schemes and the delay in repayment of funds is too much to bear.
The decision of AMC due to illiquidity faced was a step taken to protect the investors’ interest, but it has shaken investors’ faith in terms of investing debt fund investment. The investors have to pay the price though which is to wait and watch as the plot unfolds.
Even the capital market regulator has called in the shots but extremely late along with certain other norms like increasing the percentage holdings of government bonds in certain debt schemes. Meanwhile, even the AMFI has assured investors that a majority of the fixed income fund assets are invested in superior credit quality securities, and the schemes have appropriate liquidity to ensure normal operations. It further stated that the industry remains fully committed to the investors’ interests and there is no need for them to panic and redeem investments.
Thus, it would be wise to invest in instruments issued by government and public sector enterprises, and stay away from those having high exposure to private issuers.
Before investing in debt funds understand the various risks involved and invest in schemes where the portfolio risk aligns with your own risk appetite and financial objective.
This article first appeared on PersonalFN here