Brokers’ Lobby Wants A SEBI Panel To Take Control Of Franklin Templeton Mutual Fund
A trader reacts as he monitors financial data displayed on his computer screens at brokerage firm. (Photographer: Balint Porneczi/Bloomberg)

Brokers’ Lobby Wants A SEBI Panel To Take Control Of Franklin Templeton Mutual Fund

The NSE brokers’ lobby wants the market regulator to set up a high-level committee to take over the management of Franklin Templeton Mutual Fund, after the asset manager wound up six debt schemes citing liquidity issues caused by the new coronavirus pandemic.

The Association of National Exchange Members of India also asked SEBI to examine investment decisions of the mutual fund, besides safeguarding erosion of the investor wealth, according to its letter to the Finance Ministry and the Securities and Exchange Board of India. BloombergQuint has reviewed a copy of the letter.

Last week, Franklin Templeton wound up six yield-oriented, managed credit funds from April 23 as it said it was “left with no other option” after the pandemic reduced liquidity in the Indian bond markets for most debt securities and led to unprecedented levels of redemptions.

The combined assets under management of the six debt fund schemes, according to Value Research, stood a little over at Rs 30,850 crore as on March 31, 2020. Most of the holdings across the debt schemes were rated AA and lower. The brokers, however, sought the market regulator’s intervention to safeguard the Rs 86,000-crore investment across all Franklin Templeton’s mutual fund schemes as of March.

The fund house’s investment in low-rated paper is “questionable”, the brokers’ body said in the letter. “Franklin Templeton has taken long-dated securities that normally have lesser liquidity compared with short-dated securities. These long-dated securities with substantial investment in low-rated paper is the real cause of illiquidity that has caused the closure of six funds,” it said.

Also, the association alleged that many of these papers have maturity period of one-nine years and the mutual fund invested in these papers through their ultra-short bond fund in direct contravention to SEBI guidelines that requires investments in instruments between three and six months.

The asset manager, the brokers’ lobby alleged, allowed several investors to exit at an advantage at the cost of those who continued to remain invested in the fund.

Also Read: Has Franklin Templeton Convulsed An Entire Mutual Fund Category?

The closure of these high-yield debt schemes spooked investors, prompting the central bank to open a 90-day special liquidity facility for the mutual funds. The special facility will channel Rs 50,000 crore in liquidity towards mutual funds, should they choose to use it, the Reserve Bank of India said in a statement on Monday.

Also Read: BQ Big Decisions: As A Crisis Hits Debt Funds, Is Your Money Safe?

SEBI and the finance ministry are yet to respond to BloombergQuint’s emailed queries.

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