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In an unprecedented move, Franklin Templeton Mutual Fund (FTMF) announced its plan to wind up six of its debt funds. Here, we give you the lowdown on the winding-up procedure of an MF scheme.
The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, permits the winding up of an open-ended MF scheme in one of the following events — one, on the happening of any event which, in the opinion of the trustees, requires the winding up of a scheme; two, if 75 per cent of the unit-holders of a scheme pass a resolution that the scheme be wound up; three, if SEBI so directs in the interest of unit-holders.
In the case of FTMF, its trustees in India, Franklin Templeton Trustee Services Pvt Ltd, after consultations with its investment team and the asset management company (AMC), reached the conclusion that an event had occurred that required six schemes to be wound up, that it was the only viable option to preserve value for unit-holders.
The trustees are also required to give the details of the wind-up in two daily newspapers with an all-India circulation, and/or a vernacular newspaper with a circulation at the place where the MF was formed. On and from the date of publication of notice in the newspaper, the AMC can cease to carry out any business activity in respect of the scheme.
In the case of FTMF, the AMC ceased to carry out operations with respect to the six debt schemes from April 24, 2020, the day on which an advertisement in this regard was circulated in the newspapers.
Unit-holders meeting
Meanwhile, before the winding up of the schemes, the trustee shall call a meeting of the unit-holders. The approval of a simple majority (more than 50 per cent) of the unit-holders — present and voting — at the meeting is required. Such a meeting shall not be necessary if the scheme is wound up at the end of its maturity period.
An FTMF press release said the approval of the unit-holders will be sought electronically or other means, as circumstances permit. Those whose names appear on the register of unit-holders at the close of business hours of April 24, 2020, shall be entitled to vote on the matter. Investors who have not registered their email ids have to do so with the AMC at the earliest.
Experts believe FTMF is almost certain to obtain approval. Even if it doesn’t get majority approval, “trustees may urge SEBI to direct the schemes to be wound up in the interest of unit-holders, under regulation 39 of MF regulations,” said Sunil Gidwani, Partner, Nangia Andersen.
Sale proceeds
The trustee authorised will realise or dispose of the assets of the schemes going ahead. The sale proceeds after the discharge of all liabilities and expenses will be paid to the unit-holders on a pro rata basis.
On completion of the winding up of the schemes, detailed reports will be sent to SEBI and unit-holders. Once SEBI is satisfied with the measures, the scheme shall cease to exist.
“While Franklin Templeton has announced its decision to wind up the schemes, in effect, it is only locking or freezing redemptions and other transactions. The average duration of investments held by these funds ranges from one to three years. It will take a lot of time before the fund actually liquidates all investments, repays all investors and then winds up,” said Gidwani.
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