Franklin Templeton MF: AMFI Files SLP before SC; Midas Touch Investor Association Says Cancel FTMF’s Registration
While the Association of Mutual Funds in India (AMFI) has reportedly filed a special leave petition (SLP) in the Supreme Court (SC) in the Franklin Templeton Mutual Fund (FTMF) issue, the Midas Touch Investors Association (MTIA) has asked market regulator Securities and Exchange Board of India (SEBI) to suspend for one year the registration certificate of FTMF.
 
In a representation addressed to Ajay Tyagi, chairman of SEBI, Virendra Jain, founder and president of MTIA, says, "You are requested to suspend their respective certificate of registrations granted by SEBI, under mutual funds regulations, to undertake activities relating to operating mutual funds in India for one year for making false, misleading, biased and deceptive statements while seeking consent of unitholders via e-voting."
 
The apex court is scheduled to hear the matter on 18 January 2021. During a previous hearing last month, the SC, while granting a stay on redemption requests from investors of FTMF, had directed the trustees to call a meeting of unit-holders to seek their consent within a week. The apex court had also directed SEBI to appoint an observer for the e-voting process. Subsequently, the market regulator appointed TS Krishnamurthy, former chief election commissioner (CEC) as observer for the e-voting process and issued a statement on 26 December 2020 when the e-voting process had commenced. 
 
The Chennai Financial Markets and Accountability (CFMA), an investor protection body fighting for the cause of investors, had claimed that the appointment of an observer for e-voting by SEBI was an afterthought. The SEBI release says, Mr Krishnamurthy was appointed as observer on 18 December 2020, following an order from the Supreme Court. However, this appointment was made known by SEBI only on 26 December 2020 through the release, after the e-voting process had started and when it was a weekly off at the market regulator's office.
 
SEBI was also directed by the apex court to submit a forensic audit report before the hearing this month. Mr Krishnamurthy also had to submit the election results in a sealed cover. 
 
According to Mr Jain, a copy of the AMFI SLP was provided to Ratnajit, an investor, who has filed an impleadment application that may be heard on 18th January. MTIA, however is not a party in the SC proceedings, Mr Jain clarified.
 
In its letter to the SEBI chief, the investor association has reiterated that Franklin Templeton Trustee Services Pvt Ltd (Trustee) have no right to make a distress sale. "Trustees have no right to sell at deep discount knowing that it will hurt unitholders," the letter says, adding, "Redemption of MF units is not subject to sale of securities held in the scheme portfolio and the Trustee cannot stop redemption beyond 10 days under any circumstances. Trustees, asset management company (AMC) and sponsor are obliged to make redemption from their own sources, and it cannot be shifted to investors."
 
Last month, in its letter, Midas Touch Investor Association had asked FTMF not to shift the liability of mismanagement to unitholders and had asked SEBI for remedial action. 
 
Calling the issue of ‘distress sale’ a bogey, Mr Jain had alleged, “This is raised by trustees and AMC to escape their financial responsibility of making payment to unitholders, as and when demanded by them, as per the offer document. The assets under management (AUM) here is Rs26,000 crore invested by unsuspecting three lakh investors.” The investor group has said that it completely differs from the views of FTMF’s trustees as well as those of SEBI that were expressed in the Karnataka High Court." (Read: Franklin Templeton MF: Don’t Shift Liability of Mismanagement to Unit-holders, says Midas Touch Investor Association; Demands Remedial Action from SEBI)
 
As Moneylife had pointed out, the e-voting of unit-holders of six debt schemes of FTMF, which started on 26th December and ended on 29 December 2020, appeared to be turned into a farce by the mutual fund. 
 
What was more startling was the design of the e-voting process, especially the use of green colour for 'Yes' and red colour for 'No' option with appropriate wording accompanying each.
 
Next to the green ‘Yes’ button were words framed in an affirmative and comforting manner: “Means opting for an orderly winding-up of the scheme with a potential to realise fair value from the assets." Next to the red ‘No’ button were words framed in a scare-mongering and negative manner: “Means opting for the Scheme to be re-opened, potentially leading to distress sale of assets and loss of value.” 
 
This colouring and textual framing made the entire e-voting process biased towards FTMF since we all have the perception of green signal and red signal embedded in our minds.
 
Everyone who sees a green signal at a traffic post will go ahead and would stop after seeing a red signal. Therefore, the use of this specific colour coding by FTML appears a deliberate attempt to influence the voting process. (Read: The Farce of Franklin Templeton E-voting: Green for Yes, Red for No)
 
In November last year, the Trustee Services, which initially had argued that mutual funds are empowered to wind up schemes without unit-holders' consent, sought permission from SEBI to hold a vote on the issue on 8th November.
 
The Karnataka High Court, in its judgement in October 2020, had said the decision of Franklin Templeton to wind up the six schemes cannot be implemented unless the consent of the unit-holders is obtained.
 
Earlier, on 23 April 2020, Franklin Templeton had announced shutting down six debt fund schemes due to poor and illiquid investments amid the coronavirus crisis, leaving lakhs of investors in a lurch. The total assets under management (AUM) of the six schemes were over Rs25,000 crore, spread across 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.
 
 
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    COMMENTS

    DB

    2 months ago

    FTMF team has not put any official stand on media news that their employees sold their investment before closing these six schemes, has it? What's stopping their management.

    For any open ended scheme, all investors , unitholders can very well sell their units on the same day, hence their view of distress sale would be applicable for all schemes in such scenario, would they put all schemes under winding assuming that all can sell their units on same day

    vangalakrish

    2 months ago

    Every time I see the new twist just when the case comes for hearing be it previously with KHC or now SC. FT is running so many other funds and why MIDAS is trying to hurt other investors. Stabbing our own fellow investors by asking for cancellation of FTMF registration is not a solution that FT debt investors want. I am also perplexed why Green or Red color buttons used in E-Voting is made as such a big deal. Most of the debt MF investors are educated and don't think choice of color would have made difference in any investors decision. Giving twists and turns delaying the outcome of the decision to disburse available funds would only aggravate the situation for the investors.

    gopaliyer1950

    2 months ago

    FTM registration suspension a good suggestion.May be they may be prohited from mobilising fresh funds and eventuly cancel registration permenently post return of all monies to the investors.Authorities may also consider mandating setting aside say 10% of monies mobilised with Government for investments into government securities to be used in the event of similar mishaps

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