Debt Fund Crisis at Franklin Templeton – Can it Bounce Back?
Code : ITF0042 |
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FTI – BACKGROUND NOTE: Franklin Templeton, a US-based global investment firm, managed US$ 1.4 trillion globally. As of July 2022, FTI, its Indian arm, was India’s ninth largest fund house, with average assets under management of 56,000 crore (560 billion) from 20 lakh (2 million) investors .... JUDICIAL INTERVENTION: In June 2020, a section of investors challenged FTI’s decision to wind up the schemes in the Gujarat High Court, which stayed the FTI’s April 2020 decision . Later, all the cases related to these issues were transferred to the Karnataka High Court. On October 24, 2020, the Karnataka High Court ruled that FTI must get investors’ consent for the closure . Acting on the court ruling, in December 2020 , FTI conducted an e-voting in which, the fund house claimed.. FORENSIC AUDIT INTO FTI: As the mainstream media picked up the FTI story and investors started to cry foul, on May 27, 2020, the Securities and Exchange Board of India (SEBI), the regulatory body for the securities market in India under the Ministry of Finance, Government of India, ordered a forensic audit into the alleged wrongdoing by FTI.. ROLE OF SEBI: On June 7, 2021, SEBI fined Franklin Templeton Trustee Services, FTI AMC President Sanjay Sapre (Sanjay), and seven others 15 crore (150 million) for abruptly closing the six debt mutual funds schemes. SEBI observed that FTI had not exercised high standards of service, lacked due diligence, and failed to exercise independent professional judgment to address risks. CRIMINAL INVESTIGATION AGAINST FTI: In March 2021, the Enforcement Directorate (ED), a law enforcement agency under the Ministry of Finance, Government of India, responsible for fighting economic crime in India, started an investigation to probe money laundering allegations against FTI and its senior management. The ED registered an Enforcement Case Information Report (ECIR) against FTI.. RISK MANAGEMENT AT FTI: Analysts opined that Risk Management in mutual funds should be an independent function, free from any undue influence from other functions and foreseen risks should be red flagged for corrective action. However, they believed that in the case of FTI, there was evidence of interference and exclusion of concerns of Risk Management, leading to risk not being a truly independent function.. THE CHALLENGE BEFORE AVINASH: In April 2022, exactly two years after the debt-fund fiasco, Sanjay, the FTI President at that time, reiterated in an interview his organization’s commitment to India and Indians.. |
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