Stocks

SEBI may question Franklin MF on ‘missing’ ₹304 cr

PALAK SHAH Mumbai | Updated on April 14, 2021

Regulator already probing fund house for alleged fraud, unfair trade practices

 

SEBI may ask Franklin Templeton Mutual Fund (FTMF) to explain the gap of ₹304 crore in the maturity profile document of the now shut six debt schemes that was released by the fund recently.

This will be part of SEBI’s ongoing investigations against FTMF for alleged fraudulent and unfair trading practices after it wound the six schemes abruptly last year.

Disclosures by FTMF show that it received ₹15,776 crore as on March 31, 2021. Of this, it claims to have repaid the borrowers ₹4,476 crore and has shown ₹9,122 crore as cash distributed to its investors (the job has been entrusted to SBI MF as per court order). Another ₹1,884 has been shown by FTMF as surplus cash available for distribution as on March end. Subtracting the outflow amount from the inflows received by FTMF shows a gap of ₹304 crore, which has come to the notice of SEBI, sources said. FTMF has nowhere explained in its disclosure documents as to where and how it spent ₹304 crore, the sources said.

 

Unexplained fund flows

Usually, MFs have two main expenses including running the scheme and distributing the cost. An interest cost is involved if there are borrowings. However, FTMF shut down the six debt schemes in April 2020. Hence, FTMF cannot claim large amounts as distribution or scheme running charges; this could generate controversy. Still, it has provisioned around ₹85 crore as distribution charges and would be seeking around ₹15 crore for running the scheme for the past one year, sources say. Even after that, around ₹200 crore worth of fund flows remain unexplained.

“Why should investors bear interest cost on loans incurred by FTMF to meet redemptions, weeks before shutting its schemes. It is a controversial issue as SEBI is probing FTMF for fraud and allowing redemptions to associates,” sources close to the regulator said.

FTMF allowed redemptions of over ₹20,000 crore few weeks prior to the suspension of the schemes and even after that. The fund house borrowed15 per cent or ₹4,000 crore of the gross value of the six schemes as of April 2020 to meet redemptions. It even marked down the net asset value of its six debt schemes by 54 per cent to just ₹24,631 crore by the end of April 2020 compared to ₹53,399 crore in September 2019.

SEBI did not respond to an email query on the matter. When contacted, FTMF said, “The expenses charged are in accordance with the scheme information documents and applicable regulations. The books of the schemes are duly audited by statutory auditors and the amounts distributed to investors were arrived at after providing for expenses chargeable to the schemes in accordance with the applicable regulations. The AMC has not charged investment management fees to the schemes under winding up since April 23, 2020.”

Published on April 14, 2021

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