The Madras High Court has sent notice to Franklin Templeton Fund for closure of its six funds in April 2020 resulting in nearly Rs.30,000 crore being locked up. Notwithstanding the legal outcomes, there are four areas where Franklin Templeton MF has grossly failed.
What were trustees doing?
This is question that is going to haunt Templeton Fund for a long time to come. The trustees are supposed to be independent watchdogs that put the interest of unit holders above the AMC. Clearly, that has not been adhered to. It is hard to imagine how the trustees could have approved such a one-sided decision which was clearly loaded in favor of the AMC and against the unit holders. They should have raised red flags and even called for SEBI action. That will go down as a gross disfavor to the unit holders of the fund.
Who is really accountable?
In the last one month, the CEO of the AMC, Mr. Sapre, has been dodging the key question about who was answerable for the mess. If the star debt fund manager, who caused this fiasco, was directly reporting to the regional head office rather than to the CEO; that was something that should have drawn the attention of trustees. The CEO has not spelt out what caused these deep cuts in value and what action Templeton plans to take against erring officials.
Arm twisting unit holders
The kind of options that Templeton is offering to its unit holders, it is a fit case for SEBI to withdraw their license to operate in India as a fund manager. Firstly, they bought bonds in companies in which no prudent investor would ever put money. Secondly, they have not disclosed about the burgeoning risks in these investments, which is again clear dereliction of their role. Thirdly, the unit holders have literally been given an ultimatum that unless they vote for the liquidation of the scheme, they would virtually get nothing. Above all, unit holders are expected to vote for dissolution without the faintest idea of what they would realize. In fact, the realizable value is pegged at less than 25%. That is unfair to unit holders.
Time to disgorge losses
For too long, the onus of MF regulation has focused more on the distributors and less on fund managers. In the last 2 years, it is the role of fund managers and the asset selection decisions that have come under scrutiny. It is true that mutual fund investments are subject to market risk. That is something investors are prepared for. What they are not prepared for is taking huge capital losses just because some over-agile fund manager chooses to shoot from the hip. The regulator has to set a precedent and disgorge losses. Let it be a clear precedent for the future! ©