On Thursday, the Securities and Exchange Board of India (SEBI) said that it has advised Franklin Templeton Mutual Fund (FT) to return investors money, in the context of their winding up six of their debt schemes.
SEBI’s comments come a day after FT’s global chief blamed a rule introduced in October 2019 for winding up of six of its debt schemes in India.
SEBI mandated mutual funds to cap their exposure to unlisted non-convertible debentures (NCDs) at 10 percent of the schemes’ corpus.
Franklin’s CEO Jennifer Johnson said this rule “orphaned” one-third of their funds as these unlisted NCDs could not be traded after the circular.
Further on April 24, FT announced the closure of six debt fund schemes and blocked redemptions indefinitely, which incorporates Franklin India Low Duration Fund, Dynamic Accrual Fund, Credit Risk Fund, Short Term Income Plan, Ultra Short Bond Fund and Income Opportunities Fund.
SEBI clarified that low credit inflow since September 2018 led to challenges in the corporate bond market. Due to which a need was felt to review the regulatory framework for mutual funds and take the necessary steps to safeguard the interest of investors.
“It was observed that unlisted debt securities, particularly bespoke securities during which only one investor invested, suffered from both sorts 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 opposite ,” the markets regulator said during a late evening handout .
SEBI said it had initiated various working groups to look after the issues and improve transparency in the system. These working groups represent asset management companies (AMCs), industry and academia
Also, an internal working group is constituted to review prudential norms for mutual funds for investment in various debt and money market instruments.
However, in the present scenario, Franklin Templeton should focus on returning the money of investors as soon as possible.