Franklin Templeton MF: Don’t Shift Liability of Mismanagement to Unit-holders, says Midas Touch Investor Association; Demands Remedial Action from SEBI
Raising important questions on the proposal of Franklin Templeton Trustee Services Pvt Ltd (Trustee) seeking unit-holders’ consent to wind up six debt schemes of Franklin Templeton Mutual Fund (FTMF), the Midas Touch Investors Association (MTIA) has asked market regulator for an immediate remedial action to avoid any further damage and loss to the investors.
In a representation addressed to Ajay Tyagi, chairman of Securities and Exchange Board of India (SEBI), Virendra Jain, founder and president of MTIA calls the issue of ‘distress sale’ a bogey. He alleges, “This is raised by trustees and asset management company (AMC) to escape their financial responsibility of making the payment to unitholders, as and when demanded by them, as per the offer document. The asset 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 Karnataka High Court.
According to MTIA, the burden of winding of six debt schemes, has also to be borne by the trustees, the AMC and sponsor.
It says, "They are bound by the terms of payment in the agreement and scheme information document (SID). It was for them to have evaluated this 'risk factor' while entering into mutual fund business in India. The liability of mismanagement cannot be shifted to unit holders. They are the injured and duped party."
“MF code of conduct also prohibits trustees and AMC to enter into such contracts in order to protect unitholders interest. Resultantly, trustees and AMC are not authorised- as per the offer document (OD) -SID, contract agreement terms and MF Regulations- to make distress sales which they know will result in loss to the scheme. In doing so, they will be violating and taking action against the letter and spirit of SEBI Act, MF Regulations, Indian Trusts Act and Indian Contract Act, among others which would be patently illegal. You are requested to ensure that such act is not done to the extremely detrimental to all the investors,” the investor association says.
There is nothing about a person resorting to distress sale and it happens all the time, Mr Jain says, adding, "the issue here is, can a trustee, who is a custodian also, unilaterally decide to dispose of the asset at admittedly throw-away price while he does not have the specific power to do so? The question is, why resort to distress sale?"
"It is the responsibility of trustees and AMC to make payment to unitholders as per the terms of the contract between trustees and unitholders and mutual fund (MF) regulations framed by SEBI; and Indian Trusts Act," he points out.
Further, Mr Jain says, there is no clarity about the fate of investors who cast a “no” vote. He says, "(T)he payment schedule has not been given along with the said notice. Whether there will be any difference in payment schedule for those who opt for winding up and those who do not consent with the proposal of winding up?" he asks.
Earlier, the Chennai Financial Markets and Accountability (CFMA), an investor group, has asked investors of FTMF to vote against the proposal by trustee to wind up six debt schemes.
"These abruptly closed debt funds were managed by the so-called professional fund managers claiming that 'Sab Sahi Hai' and were expected to perform better than the benchmark index, which in the case of debt funds is a 10-year government bond yield. Unit-holders should not get lured by the vague promises of FTMF and more specifically by Sanjay Sapre, (president of Franklin Templeton Asset Management (India) Pvt Ltd -FTAMPL) which has been attempted since the winding up was announced. In fact, all unit-holders should demand in writing from Mr Sapre that there will not be any loss of value to any unitholder. Otherwise, let Mr Sapre clarify in writing how much loss each unitholder will have to suffer and why?" CFMA says. (Read: Franklin Templeton MF: Chennai Investor Group CFMA Asks Investors To Vote Against Winding Up of 6 Debt Schemes
Last week, the Supreme Court (SC), while granting a stay on redemption request from investors of FTMF, had directed the trustees to call a meeting of unit-holders to seek their consent within a week. On 24 October this year, the Karnataka High Court had asked FTAMPL to seek consent from unit-holders for winding up the six debt schemes.
The voting will take place from 26th to 28th December, while the meeting of unit-holders of these six debt schemes is scheduled for 29 December 2020.
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. (Read: Rs30,000 Crore Stuck in Franklin India Proves Why Debt MF Scheme Categories Are Not Worth the Risk