SEBI Orders Franklin Templeton AMC To Refund Over Rs 500 Crore, Bars New Debt Schemes For Two Years
SEBI says breach of rules by Franklin Templeton ultimately led to winding up of six schemes.
The market regulator barred Franklin Templeton Asset Management Co. from launching certain debt schemes for two years and asked it to pay Rs 517 crore for breaching rules that ultimately led to winding up of six debt schemes.
The Securities and Exchange Board of India also restrained Vivek Kudva , former director of Franklin Templeton AMC; and his wife Roopa Kudva from accessing the securities market for a year, according to a separate order by the regulator. It also imposed a penalty of Rs 7 crore on the couple.
Noticee has been found seriously wanting insofar as its conduct as an AMC is concerned. There are findings of breaches of the mutual funds regulations as also the SEBI circulars, brought out above, under various heads. Income derived out of wrongful conduct, which ultimately resulted in loss and caused hardship to the investors...Securities and Exchange Board of India
In April 2020, Franklin Templeton had informed unitholders that it would wind up the six schemes that held illiquid investments and faced redemption pressure. After receiving complaints, SEBI initiated a forensic audit and investigation against Franklin Templeton Mutual Fund, its board of directors and trustees on how the six schemes were managed.
The schemes include Franklin India Ultra Short Fund/Ultra Short Bond Fund; Franklin India Low Duration Fund; Franklin India Short Term Income Fund/Plan; Franklin India Income Opportunities Fund Franklin India Dynamic Accrual Fund and Franklin India Credit Risk Fund.
Based on the inspection report, SEBI served a show-cause notice on Franklin Templeton AMC on Nov. 24, 2020. The notice alleged 16 violations by the mutual fund. The proceedings culminated in Monday's order barring Franklin Templeton from launching new debt schemes for two years.
SEBI found violations in:
- Scheme categorisation by replicating high-risk strategy across several schemes.
- Non-exercise of exit options in the face of emerging liquidity crisis.
- Securities valuation practices.
- Risk management practices.
- Investment-related due diligence.
In the categories of the six debt schemes under investigation, the two-year ban will be effective from the date these plans ceased to exist.
SEBI directed Franklin Templeton AMC to refund investment management and advisory fees collected from June 4, 2018 till April 23, 2020 under the six schemes, along with a 12% annual simple interest from the date of the order. This amount of Rs 512.5 crore, the order said, will be used to repay unitholders.
The asset manager will also have to pay a penalty of Rs 5 crore within 45 days.
The regulator also initiated adjudication proceedings against certain employees of the Franklin Templeton AMC, including its chief executive officer, chief compliance officer and the director.
The order comes into force with immediate effect.