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Six suspended debt schemes: Franklin Templeton investors vote for closure

Suresh P Iyengar Mumbai | Updated on January 18, 2021

SC to decide on distribution of money on Jan 25

In a major relief for embattled fund house Franklin Templeton, over 90 per cent of investors have voted in favour of the closure of six suspended debt funds. Investors can now hope to receive ₹9,190 crore accumulated in five cash positive debt schemes.

The Supreme Court in its next hearing, scheduled for January 25, will decide on the process for distribution of the cash and liquidation of assets in the schemes.

A Bench headed by SA Nazeer granted three days for filing of objections to the e-voting on the winding up of the schemes. The Bench, also comprising AS Bopanna and V Ramasubramanian, was asked by the counsel for Franklin Templeton that an order be passed for allowing distribution of money to the unit-holders.

Since their suspension on April 24, 2020, the six debt schemes have received ₹13,789 crore as of January 15 from maturities, pre-payments and coupon payments.

“We are thankful to unit-holders for voting overwhelmingly in favour of the orderly winding up in all the six schemes. We hope to commence distribution of investment proceeds at the earliest, subject to the directions of the Supreme Court in the next hearing scheduled for January 25,” said a spokesperson of Franklin Templeton.

Franklin Templeton Ultra Short Bond Fund received 96.78 per cent votes in favour of closure of the scheme while the Low Duration and Credit Risk Fund funds got 97.23 per cent and 97.97 per cent favourable votes, respectively. The Similarly, Short Term Income Plan, Income Opportunity Fund, and Dynamic Accrual received 97.61 per cent, 96.89 per cent and 92.6 per cent votes, respectively, in favour of closure, according to the observer appointed by SEBI.

 

Supreme Court decision

The apex court will also decide on the key question of whether an e-voting should be conducted on liquidation of assets in the schemes by the Trustees of the fund house or a third party institution. Industry body Association of Mutual Funds in India (AMFI) has filed a special leave petition in the case against seeking prior nod of investors before shutting the schemes.

JN Gupta, founder of SES (Stakeholers Empowerment Services) and former SEBI official, said that there was no need for intervention by the court in this matter. “Franklin's was an extraordinary situation where suspension seemed a requirement. A thorough scrutiny is warranted into how this situation was reached in the first place. Further, when SEBI had approved the closure of the scheme, there was no need for any court to intervene or any unit-holder or court to have doubted it,” Gupta said.

Last resort

The decision to close a scheme is the last resort for any mutual fund as it damages its business prospects and affects inflows in other well-performing schemes also, said Parthik Agarwal, an independent advisor.

Moreover, once a mutual fund announces the closure of a scheme, investors would rush to redeem their investments, leading to distress sale of assets and heavy loss to investors, he said.

For instance, the average assets under management of Franklin Templeton plunged 36 per cent in the December quarter to ₹81,26,611 crore against an AUM of ₹1.26-lakh-crore in the same period last fiscal.

With inputs from Palak Shah

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Published on January 18, 2021
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