Franklin Templeton gets investors' nod for winding up six schemes

In April last year, FT decided to wind up six of its debt schemes oriented towards high-yield investments with total assets under management of over Rs 25,000 crore.
Investors in the six shut debt schemes of Franklin Templeton Mutual Fund have voted overwhelmingly in favour of shutting them down.

The observer’s report has revealed that about 97 per cent of votes in five of the debt schemes — Franklin India Low Duration Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund, and Franklin India Income Opportunities Fund — were cast in favour of closing the schemes. For Dynamic Accrual fund, the figure was 93 per cent in favour.

In six video meetings held last month, the asset manager’s top management and trustees had assured investors that if the outcome of the voting was a ‘Yes’, it would be able to monetise the papers faster, while preserving the value of their investments as market conditions had become a lot more conducive.

“Winding up was always in the interest of investors. The overwhelming vote and improvement in the credit market could mean much faster recoveries for investors going forward,” said Amol Joshi, founder, Plan Rupee Investment Services.

Experts believe it could take another three-five weeks for the second vote for appointing a liquidator. The Supreme Court will hear the matter again on January 25 to decide on disbursement of cash after delving into objections to the Observer’s report.

“We are thankful to our unitholders for voting overwhelmingly in favour of the orderly winding up in all six schemes. We hope to commence distribution of investment proceeds at the earliest, subject to the directions of the Supreme Court in the next hearing,” said a spokesperson for Franklin Templeton.

According to the latest update by the asset manager, the six schemes had received cash flows of Rs 13,789 crore since winding up till January 15, 2021, from maturities, pre-payments, and coupon payments since April 24, 2020. The cash available as of January 15 stood at Rs 9,190 crore for the five cash positive schemes, subject to fund running expenses.

The Supreme Court in early December had issued an interim order allowing the trustees of FT MF to seek consent of unitholders for winding up the six debt schemes under section 18(15)(c) of Sebi (Mutual Fund) Regulation, 1996. Redemptions would continue to be suspended till further notice.

In October, the Karnataka High Court had ruled that FT Trustees’ decision to wind up schemes could not be implemented without unitholders’ nod.

In April last year, FT decided to wind up six of its debt schemes oriented towards high-yield investments with total assets under management of over Rs 25,000 crore. 
It cited continued redemption pressure and lack of liquidity in the debt market, amid the coronavirus-induced lockdown, for the closure.

Later, the economic offences wing (EOW) of the Chennai Police had registered a first information report (FIR) against the asset manager and Franklin Templeton Trustee Services for an alleged criminal conspiracy to defraud 300,000 investors by causing wrongful loss to them and unlawful gain to themselves.

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