Sebi on Monday barred Franklin Templeton Asset Management (India) from launching any new debt scheme for two years and imposed a penalty of Rs 5 crore for violating regulatory norms in the case of winding up of six debt schemes in 2020.
Also, it has been asked to refund investment management and advisory fees of over Rs 512 crore (including interest) collected with respect to the six debt schemes. This amount will be used to repay unitholders, as per Sebi order.
However, Franklin Templeton has said it "strongly disagrees" with the findings in the Sebi's order and has decided to challenge the direction in Securities Appellate Tribunal (SAT).
In an e-mail dated June 8 to investors, Franklin Templeton AMC President Sanjay Sapre said Sebi's order does not impact the current monetization process of the six debt schemes under winding up being undertaken by the liquidator.
"The order also is not related to and has no impact on the other debt, equity, hybrid and offshore schemes managed by Franklin Templeton," he said.
"We continue to manage over Rs 61,000 crore of AUM (monthly average AUM as of March 2021) for over 2 million investors in India," he added.
Sebi, in its order, said it had found that Franklin Templeton has committed serious lapses/violations with regard to a scheme categorization (by replicating high–risk strategy across several schemes) and calculation of Macaulay duration (to push long term papers into short duration schemes).
Also, it has committed violations in respect of non–exercise of exit options in the face of emerging liquidity crisis, securities valuation practices, risk management practices and investment related due diligence, it added.
"As a result of the irregularities in the running of the debt schemes inspected, loss has been caused to the investors. The noticee (Franklin Templeton AMC) was under a statutory obligation to abide by the provisions of the Mutual Regulations and Circulars issued thereunder, which it failed to do," Sebi noted.
Franklin Templeton MF announced shutting 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.
Sapre, in the letter, said the decision by the Trustee in April 2020 to wind up the schemes was due to the severe market dislocation and illiquidity caused by the COVID-19 pandemic and was taken with the sole objective of preserving value for unitholders.
The six schemes under winding up have distributed Rs 14,572 crore to unitholders as of April 30, 2021 and an amount of Rs 3,205 crore was available for distribution as of June 4, 2021.
After this distribution in the first week of June 2021, the total amount of disbursement would reach Rs 17,778 crore, amounting to 71 per cent of assets under management (AUM) as on April 23, 2020.
Sapre told investors that Franklin Templeton's immediate priority and focus remains on supporting the court-appointed liquidator in liquidating the portfolio of the schemes under winding up and distributing monies to the unitholders at the earliest, while preserving value.