Tag: Franklin Templeton AMC

SEBI imposes Rs 15 crore penalty on Franklin Templeton AMC officials, trustee

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Securities and Exchange Board of India (SEBI) on Monday imposed a penalty totalling Rs 15 crore on senior officials of Franklin Templeton AMC and its trustee for violating regulatory norms in the case of winding up of six debt schemes in 2020.

A fine of Rs 3 crore has been levied on Franklin Templeton Trustee Services Pvt Ltd and Rs 2 crore each on Franklin Asset Management (India) Pvt Ltd President Sanjay Sapre and its Chief Investment Officer Santosh Kamat, according to a SEBI order.

In addition, the regulator imposed a penalty of Rs 1.5 crore each on Kunal Agarwal, Sumit Gupta, Pallab Roy, Sachin Padwal Desai and Umesh Sharma, who were the fund managers at the time of violation, and Rs 50 lakh on Saurabh Gangrade, who was the chief compliance officer at that time. They have been directed to pay the penalty within 45 days. SEBI noted that the trustees of Franklin Templeton Mutual Fund (MF) are thorough professionals and these officials are experts in their respective domain, and yet they failed to avert certain lapses in the functioning of a mutual fund.

“The acts and deeds committed by them while discharging their duties are not in the interest of the unitholders in specific and the investors in general,” SEBI said in its 151-page order. According to the regulator, the officials did not exercise proper due diligence while discharging their responsibilities at the relevant time and violated the regulatory requirements, which hampered the interest of the unitholders.

Franklin Templeton MF shut its six debt mutual fund schemes on April 23, 2020, citing redemption pressures and lack of liquidity in the bond market. The 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 — together had an estimated Rs 25,000 crore as assets under management.

In its order, SEBI said that serious lapses and violations clearly appear to be a fallout of the Franklin Templeton MF’s obsession to run high yield strategies without due regard from the concomitant risk dimensions.

“For a fund house which has been in this industry in India for over two and a half decades, it is surprising that its systems to monitor and manage critical risks like liquidity, credit and concentration are less than robust.

“The effectiveness of these systems stand compromised in the process of the Noticee’s single minded pursuit of reaping high yield,” SEBI said. Franklin Templeton Trustee Services and the officials of the asset management company have been collectively referred to as noticees. SEBI said the noticees have brought out the reasons of ‘business judgment’ to defend questionable decisions.

However, it is seen that these decisions which involve deployment of public funds are barely documented. Similarly, the terms of investment covenants were apparently not in the interest of investors and the deficiencies in the agreements were sought to be corrected through a ‘commercial understanding’, SEBI noted.

“While it is easy to shift the blame for such mishaps onto black swan events, regulatory changes, etc, the noticees needs to seriously introspect and put in place robust risk control and due diligence mechanisms, given that the rest of the industry has been able to cope with the events and survive through the crisis period of the Covid-19 pandemic, without reaching the point of winding up,” it added.

In three separate orders, the regulator imposed a penalty of Rs 5 crore on Mywish Marketplaces, Rs 25 lakh on Jayaram S Iyer, Rs 45 lakh on Venkata Radhakrishnan and Rs 5 lakh on Malathi Radhakrishnan for redeeming their mutual fund units before the schemes were wound up. SEBI noted that Vivek Kudva, head of Asia Pacific (APAC) for Franklin Templeton, and Alok Sethi, director at Franklin Templeton Trustees, were directors on the board of Mywish Marketplaces. They have been penalised for redeeming their units while in possession of non-public information with respect to stress in the debt schemes. Through such activities, they violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms, SEBI noted.

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Franklin Templeton MF’s six shut schemes generate Rs 15,272 cr

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Franklin Templeton Mutual Fund has said its six shut schemes have received Rs 15,272 crore from maturities, coupons and pre-payments since closing down in April 2020. The fund house had shut six debt mutual fund schemes on April 23 last year, citing redemption pressures and lack of liquidity in the bond market.

The 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 — together had an estimated Rs 25,000 crore as AUM.

”The six schemes have received total cash flows of Rs 15,272 crore till March 15, 2021, from maturities, coupons and prepayments since winding up,” the fund house said in a statement.

Over the latest fortnight ended March 15 this year, these schemes received Rs 224 crore. It, further, said net asset value (NAVs) of all the six schemes were higher as of March 15 this year, vis-a-vis their respective NAVs on April 23, 2020, the date on which the winding-up decision was taken.

Franklin Templeton MF said the court-appointed liquidator, SBI Funds Management, is in the process of preparing to liquidate the schemes and distribute proceeds to unitholders at the earliest opportunity. SBI Funds Management,with support from Franklin Templeton, has finalised the standard operating procedure (SOP) to monetise assets of the schemes under winding up and distribute the proceeds and has filed the SOP with the Supreme Court.

It anticipates that SBI Funds Management will commence active monetisation very shortly. ”Our focus remains on liquidating the portfolio and returning monies at the earliest while preserving value. We will provide SBI Funds Management with all possible assistance and cooperation with respect to the liquidation of the holdings,”Franklin Templeton MF said.

The fund house said that cash available for distribution in the five cash positive schemes stands at Rs 1,370 crore as of March 15, 2021.

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Franklin Templeton cites lockdown, redemptions, weak inflows as factors for schemes’ closure

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Franklin Templeton (FT) has told distributors that it was forced to take the extreme step of closing down six of its debt schemes due to a combination of high redemptions, weak inflows and “dislocation in corporate bond markets”.

The asset mangement company said that the six schemes were able to meet their redemption obligations across all market conditions and even during the initial phase of the COVID-19 pandemic lockdown amid redemption pressures and increased market illiquidity.

However, the extension of the lockdown heightened  redemption volumes and reduced inflows to unsustainable levels, FT said.

It said the schemes even resorted to borrowings within  permissible limits in line with market practice to fund redemptions during this time but it would not have been prudent to add more debt to the schemes.

While the respective valuations of these schemes were marked promptly and conservatively so far, continuous redemption pressures and the illiquid corporate bond markets made it difficult to ensure that all investors were treated fairly, FT said.

Further, given the current unprecedented situation, even the committed borrowing lines maintained by the funds were inadequate to meet the demand for sustained borrowing across the schemes, FT said.

FT said it had explored the possibility of suspending redemptions until market conditions stabilize without winding up the schemes.

However, conditions for such a suspension under the current regulatory framework, such as a maximum suspension period of 10 working days (in 90 days) and the requirement to honour redemptions up to Rs 2 lakh per day
per investor, rendered this approach unviable to meet the severe sustained impact of the current crisis, FT said.

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Mutual Fund Investments: Experts discuss risks and returns

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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CNBC-TV18’s Latha Ventakesh caught up with a host of mutual fund managers at the CII National Mutual Fund Summit.

Manish Gunwani, CIO-equity investments at Reliance Nipppon Life AMC, Navneet Munot, executive director and CIO at SBI Funds Management, Ashish Somaiyaa, MD and CEO at Motilal Oswal AMC, Vetri Subramaniam of UTI AMC, Chandresh Nigam, MD and CEO of Axis AMC and Lakshmikanth Reddy of Franklin Templeton AMC shared their views and outlook on key structural changes in the mutual fund (MF) industry.

“The first phase is where competition picks up because obviously historically the alpha creation in India is very high. Part of it is due to information asymmetry, asymmetric access to management which used to happen a decade back. Now, clearly that part is going out of the game because the markets are becoming more and more efficient, the markets are becoming more and more institutional. So to that extent, I think there will be a first phase where alpha generation will become bit more challenging in next few years. Then there will be a phase where exchange traded funds (ETFs) will do well,” said Gunwani.

“There are two large forces, democratisation of information and institutionalisation of markets have reduced the alpha. Looking from the Indian context, one can see the last few quarters, a year or two and say that whether the alpha generation is over, are we not be able to generate the alpha going forward, I still think there is a lot of arbitrage so you have to start with a fundamental believe that markets are efficient, there is wisdom in crowd but at the same time, the wisdom of crowd at times becomes the many of the mob or there are lot of other opportunities, there are a lot of other arbitrages which are available. As long as we exploit them in a systematic manner,” Munot added.

Talking about the risks faced by fund managers, Somaiyaa said, “If you are in active management, losing the fund manager is a real risk, investors should be aware of it. When you are betting on active management, fund managers making the right or wrong decisions plus the fact that fund managers may not be there forever with a particular firm or managing a particular fund is a real risk but of course it is our job as a manager, promoter, owner to ensure that the best talent is ring-fenced in whatever way that we can. Processes play a very important role. We are in a business of uncertain outcomes, we don’t control the outcome. When you cannot control the outcome, the only thing you can control is the consistency and quality of your inputs so that is where the process comes in for continuity but the risk is real.”

“As somebody from the investment side of the profession, I would certainly think that the most important thing today is to make an investment process not be individual driven, not be personality driven and we need to think about the fact that these people who have invested their money to us are not giving it to us for one year or for three year period, they are actually thinking of 15-20-25 years. So how do we build an investment organisation and investment team and investment culture and very crucially an investment process which will be the anchor around which good people are always needed but it needs to be the process which is the anchor around which good people will collaborate for 20-30 years and that is how we ensure that the alpha is not just one moon shot kind of affair, it is a sustainable, repeatable process and can be done over an extended period of time,” Subramaniam added.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow