Stop Franklin Templeton MF from using cash flow to repay bank loans: CFMA

Suresh P Iyengar Mumbai | Updated on July 05, 2020 Published on July 05, 2020

Without repaying loan in 6 debt schemes, investors cannot be paid, says FT

The Chennai Financial Markets and Accountability, an investors protection organisation, has urged market regulator Sebi to stop Franklin Templeton Mutual Fund from repaying bank borrowings in six debt schemes that are being wound up.

The fund house cannot be allowed to make priority repayment to bank borrowings from the cash flow when about 40,000 investors are waiting to get their dues, said CFMA.

Earlier, the fund house had claimed that since the six debt schemes were closed on April 24, it had received ₹2,667 crore on their asset under management of ₹28,000 crore.

2 schemes cash-positive

The four debt schemes — Low Duration, Short Term Income, Income Opportunity and Credit Risk — have a total debt of ₹2,336 crore. Ultra Short Term and Dynamic Accural turned cash positive after completely repaying bank debt of ₹1,393 crore and ₹140 crore, respectively.

To meet extraordinary redemption pressure, SEBI allows mutual funds to borrow up to 20 per cent of their assets.

While directing the agitating investors to the Karnataka High Court, the Supreme Court had said no decision could be taken until the Court decides on the matter, noted CFMA.

Franklin Templeton refuted the ‘misleading and baseless accusations’ in the CFMA report which it said are ‘factually incorrect and misguided’.

They appear to be making these statements and passing judgment on matters under the consideration of the judicial authorities, said the fund house.

In accordance with Regulation 41(2) of the SEBI Mutual Fund Regulations, the scheme must discharge its liabilities, including outstanding borrowings, before returning monies to unitholders. Borrowings of the schemes are considered as liabilities and have already been adjusted while determining the AUM. Effectively, the portfolio value is higher than the AUM reported and any repayment of borrowing will not reduce the AUM further, said Franklin Templeton.

“We continue to follow due process, both in making investment decisions and in the winding up of these schemes. We have acted in the best interest of our investors and in accordance with all regulations in this regard. Our focus remains on maximising value for unitholders in these schemes and returning monies as soon as possible,” it said.

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Published on July 05, 2020
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