SEBI Asks Franklin Templeton Mutual Fund To Focus On Returning Investors’ Money At The Earliest Read more at: https://www.bloombergquint.com/markets/sebi-asks-franklin-templeton-mf-to-focus-on-returning-investors-money-at-earliest Copyright © BloombergQuint

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May 07,2020

Mumbai: Franklin Templeton global president Jennifer M. Johnson’s statement on regulatory reasons behind shutting down its six debt schemes in India has not gone down well with Securities and Exchange Board of India (Sebi). In a statement late evening on Thursday Sebi said that it has advised Franklin Templeton India to focus on refunding investors' money at the earliest following closure of its six schemes with over ₹25,000 cr in assets
It also said that despite being given ample time to bring down investments in unlisted bonds to 10% some fund schemes have chosen to have high concentration risk.
"Despite the regulations being clear, some mutual fund schemes seem to have chosen to have high concentrations of high risk, unlisted, opaque, bespoke, structured debt securities with low credit ratings and seem to have chosen not to rebalance their portfolios even during the almost 12 months available to them so far," said Sebi in a press statement.
In October 2019 Sebi had changed the regulations governing debt schemes investment in unlisted bonds and had capped it at 10%. The funds were given a timeline of almost a year to comply with these norms.
The schemes had to comply with the investment limits for unlisted Non Convertible Debentures (NCDs) at 15% and 10% of the debt portfolio by 31 March 2020 and 30 June 2020 respectively.
"In addition, it permitted mutual funds to grandfather the existing investments in unlisted debt instruments till maturity of such instruments, so as to not disrupt the market," said Sebi.
These dates were subsequently extended to 30 Sept 2020 and 31 Dec 2020 respectively in view of Covid-19 related disruptions.
Franklin Templeton India on 23 April had shut down its six debt schemes due to illiquidity and redemption pressures because of Covid-19. However, Johnson in Franklin Templeton’s second quarter earnings call on 1 May had also blamed this Sebi rule. The transcript of the call became public on 6 May.
In October 2019 Sebi had changed the regulations governing debt schemes investment in unlisted bonds and had capped it at 10%. The funds were given a timeline of almost a year to comply with these norms.
The schemes had to comply with the investment limits for unlisted Non Convertible Debentures (NCDs) at 15% and 10% of the debt portfolio by 31 March 2020 and 30 June 2020 respectively.
"In addition, it permitted mutual funds to grandfather the existing investments in unlisted debt instruments till maturity of such instruments, so as to not disrupt the market," said Sebi.
These dates were subsequently extended to 30 Sept 2020 and 31 Dec 2020 respectively in view of Covid-19 related disruptions.
Franklin Templeton India on 23 April had shut down its six debt schemes due to illiquidity and redemption pressures because of Covid-19. However, Johnson in Franklin Templeton’s second quarter earnings call on 1 May had also blamed this Sebi rule. The transcript of the call became public on 6 May.
"It was observed that unlisted debt securities, particularly bespoke securities in which only a single investor invested, suffered from both forms of opaqueness: opaqueness of structure and true nature of risk on the one hand and lack of ongoing disclosure in respect of financials of the issuer on the other," said Sebi.
Earlier in the day Association of Mutual Fund in India (AMFI) had also defended Sebi's risk management measures.
Sebi’s cap of 10% for investment in unlisted non-convertible debentures (NCDs) and commercial papers (CPs) ensured access to relevant information and improved secondary market liquidity, Amfi said in a press statement on Thursday.
Globally it has been observed that listing bonds on exchanges create better dissemination of information resulting in finer price discovery and improved liquidity in secondary markets, Amfi said.

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