Sebi investigation finds serious lapses in Franklin Templeton India mutual fund

Capital market regulator Securities and Exchange Board of India (Sebi) has found serious lapses in the way Franklin Templeton India mutual fund managed the six debt funds that it wound up suddenly in April 2020. It has instructed the fund house to return fund management fees worth Rs 451.63 crore to the investors of the six debt funds. Plus, it has also levied a 12 percent interest fee on this amount, which sums up the total disgorged fee to Rs 512.50 crore.

Sebi, in its investigation, found that Franklin Templeton did not follow the scheme categorisation in the right spirit. In 2018, Sebi had laid down 36 mutual fund categories, each were given a boundary within which schemes were asked to operate. In its Templeton order, Sebi observed that Franklin Templeton had replicated high-risk strategies across several of its schemes.

It also found that in this period, as the debt market crisis was brewing up, the fund management did not exercise the exit options in illiquid securities, despite an emerging liquidity crisis.

In view of the lapses that the fund houses committed from the date on which Franklin Templeton mutual fund implanted the new Sebi-prescribed categories till April 23, 2020 (the date on which the fund house wound up the six debt funds), Sebi calculated the fund management fees and felt it fit that these be returned to the investors of the said schemes, plus the 12 percent per annum interest.

Additionally, Sebi has also imposed a penalty of Rs 5 crore on Franklin Templeton India Asset Management Company for violations of various SEBI rules and circulars, such as investment and borrowing norms, code of conduct, and principles of fair valuation among others.