Chennai Financial Markets and Accountability (CFMA), an investor protection body, on Tuesday, raised serious concern about the balance repayment of over Rs 14,000 crore to be made by Franklin Templeton Mutual Fund (FTMF) to its three lakh unit-holders in the six shut debt schemes.
“FTMF has paid Rs 9,122 crore and an additional Rs 2,962 crore is being repaid this week, taking the total pay-out to only Rs 12,074 crore of the total outstanding of Rs 26,670 crore,” it noted.
The investor body reiterated that three lakh unit-holders of the six shut debt schemes will have to bear a minimum haircut of anywhere between Rs 13,000 and Rs 15,000 crore, or roughly 50 percent, on their principal amount, for FTMF’s “poor investment decisions and inferior asset quality”.
CFMA has been persistently questioning how much loss the unit-holders would bear eventually and when they would actually recover their dues. However, FTMF has never committed to these issues, making it amply clear that they do not take any responsibility for their mismanagement, it said.
“The FTMF fund managers have made mostly questionable investments and did not resort to any course corrections mid-way. For such a highly paid team of managers, it is difficult to conceive that they did not gauge the market disruptions well in advance and persisted in substantial investment in sub-AAA rated paper,” it said.
“The real reason for the winding up and ultimate loss to unit-holders is the dubious investment decisions made by the fund managers, who did not actively monitor the investments closely. As a result, the FTMF lapse has cost the unit-holders not only their returns but also their principal investment in the six shut debt schemes,” it added.
CFMA pointed out: “FTMF failed to exercise any due diligence and care in its investment decisions. It had exposure to papers in some companies where it increased investment to as much as 85 percent in March 2020. Failing to exercise put options on its investment in some papers may have caused sizable loss to the unit-holders. As per the forensic report, the exposure to these companies could well have been Rs 3,000 crore and this FTMF has marked down to zero.”
FTMF is believed to have committed several irregularities. It retained Rs 100 crore as brokerage even when the six schemes were shut, the six schemes repaid Rs 100 crore loans to the FTMF without seeking regulatory approval, the fund sought diplomatic intervention on account of a Rs 440 crore disgorgement bill, and the management and connected companies withdrew Rs 56 crore before it shut, according to some media reports.
“For debt market mutual funds, the return benchmark is similar to 10-year G Sec, while the principal amount should be as safe as the government treasury bond. FTMF is taking everybody for a ride and fooling everyone in the system by saying market fraud is market risk. FTMF has taken the benchmark of junk bonds to compare its performance and just for that, FTMF should be criminally punished,” said CFMA, which has been fighting for the cause of the unit-holders of the six abruptly shut debt schemes since last April.
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