Madras high court issues notices to Franklin Templeton MF, Sebi: Investors Group

The Madras high court (File photo)
NEW DELHI: Notices have been issued to crisis-hit Franklin Templeton Mutual Fund and Sebi by the Madras high court after a petition was filed by an investors group to safeguard nearly Rs 28,000 crore of investors' money stuck in six schemes shut down by the fund house, according to a statement.

The statement by investors group also said it is separately launching an online petition to bring together all affected investors and the same would be forwarded to the Prime Minister's office as well as the US parent of the fund house and the US markets regulator SEC.

It further said mutual funds and the fund managers should be made to answer questions on their choice of investment, and compliance with regulatory and prudential norms, among others.

In the statement issued on Thursday, the investors group, Chennai Financial Markets Accountability (CFMA), said the Madras high court on May 26 issued notices to Sebi, Franklin Templeton Asset Management India Pvt Ltd (FTAMC), the trustees of the mutual fund, its President Sanjay Sapre, CIO for fixed income Santosh Kamath and other key management personnel after a Public Interest Litigation was filed by it.

The high court took cognizance of the seriousness of the matter wherein the money of the common public amounting to about Rs 28,000 crore is at risk of getting wiped off and have asked Sebi to file their reply, along with status report on the actions taken, it added.

As per the investors group, Franklin Templeton MF in their own admission have stated that the recovery of money across the six schemes will be in the range of 5-81 per cent over a period of over 5 years.

"Given the fact that the six schemes had Rs 28,000 crore worth assets under management, average loss to the unitholders taking 20 per cent as average realisation, would be around Rs 22,400 crore. This is the size of hole in the pocket of common man where the principal amount is wiped off," it added.

Nithyaesh Natraj, the counsel for CFMA, said in the present difficult times, the unitholders which otherwise have right to liquidate their holdings are hand tied and have to wait for over 5 years, and by then FTAMC would have left the Indian shores.

"Presently, the unitholders are left in lurch and will not even be able to foot emergency medical bills, leave alone fulfilling their dreams for themselves and their family," he added.

Natraj further said mutual fund schemes that are wound up are debt schemes. In contrast to the equity schemes, debt schemes are considered more secure where the principal amount of the unitholder is almost assured like deposits in the banks.

"Yet, there is no commitment either from FTAMC or Sebi that at least the principal amount of all unitholders is secure and shall be repaid," he added.

Natraj is of the opinion that the winding up of six schemes by FTAMC is just the tip of the iceberg. Franklin Templeton MF, which is considered as one of the best mutual funds in the country with pedigree of US-based MNC, has committed a default in India by winding up the schemes. If this can happen to the best mutual fund, one can imagine what could happen to the rest.

To ensure that the fund managers do not run away and make every effort under the law to recover the monies of the unitholders, the investors group, as interim reliefs, sought disclosure of their personal assets along with their relatives, injunction in disposal of the assets, restraining them to resign until the entire amount is recovered, restraining their travel abroad, amongst other things.

"Seeing the complacency of Sebi in handling the entire matter, we have sought formation of a Special Investigation Team (SIT) to oversee the actions of Sebi," CFMA said.

CFMA alleged that the mutual fund industry has been running a campaign 'Mutual Fund Sahi Hai' in association with industry body Amfi to "hypnotize, mesmerize and orient" the mind of the common people, who are largely middle class, to believe that the amount invested in Mutual Funds is safe like that of bank FD.

It, further, said the small disclaimer at the end of offer document, "investments in Mutual Funds are subject to market risk does not absolve the mutual funds, its trustees, fund managers and KMPs from cheating, fraud, arbitrariness and imprudent investment decisions.

Last month, the fund house had closed six of its debt funds, citing redemption pressures and lack of liquidity in the bond markets.

These schemes were 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.

On Thursday, Franklin Templeton MF said the voting window for affected investors will be open for three days starting June 9.

Earlier in a letter to investors, Sapre had said Franklin Templeton is committed to ensuring an orderly and equitable exit for all investors at the earliest possible time. The fund house has been working hard to expedite the process of returning money.

Sebi had also asked the fund house to focus on repaying investors at the earliest.