Franklin defends investment decisions, says employees still hold investments in shut schemes

Franklin Templeton shut six debt mutual fund schemes on April 23, citing redemption pressures and lack of liquidity in the bond market. Sapre further reiterated that employees who made investments in the six schemes continue to hold substantial investments in these schemes.

Franklin Templeton Mutual Fund has defended its investment decisions and reiterated that employees who made investments in the six shut schemes continue to hold substantial investments in them. In a letter to investors on Wednesday, Franklin Templeton MF President Sanjay Sapre clarified that reports suggesting wrongdoing or insider trading at the fund house were misleading.

Sapre said "winding up of the six funds has had a significant impact on the trust you placed in us as investors and partners. However, I remain certain that this decision, no matter how difficult, was the right decision for our investors to prevent value erosion". Franklin Templeton shut six debt mutual fund schemes on April 23, citing redemption pressures and lack of liquidity in the bond market.

Sapre further reiterated that employees who made investments in the six schemes continue to hold substantial investments in these schemes. "The decision to exercise, or not to exercise a 'put' option rests with the investment management team. The team takes various factors and options into account to maximize recovery of investment proceeds when making such an investment-related decision and exercising a put is not the only available option," he said.

Sapre said that over the last few days, several media outlets have carried reports on certain observations made in the forensic audit conducted by the Securities and Exchange Board of India (Sebi). "Claims have been made that some officials redeemed investments before winding up suggesting wrongdoing or insider trading and that Franklin Templeton did not exercise put options in papers despite ratings downgrade suggesting there were some reasons beyond the exercise of normal business judgment for such an action," he said.

Sapre, further, said the auditors themselves have acknowledged in their original submission to Sebi that the report is subject to modification basis explanations and responses to be provided by Franklin. "The reports regarding the findings of the forensic audit/inspection are misleading, we believe that it is improper to make any publication regarding the forensic audit/inspection report as the matter is under the consideration of the Karnataka High Court," he added.

From April 24 till September 30, the fund house received Rs 8,262 crore from maturities, pre-payments, and coupons across the six schemes. Part of this amount has been utilized to repay borrowings and post repayment. As of September 30, the fund house has Rs 5,084 crore available for distribution to unitholders in four cash positive schemes -- Franklin India Ultra Short Bond Fund, Franklin India Dynamic Accrual Fund, Franklin India Low Duration Fund, Franklin India Credit Risk Fund -- subject to fund running expenses.

"The cash flows received so far are without the ability to efficiently monetize assets, which will only be possible after completing the e-voting process," Sapre noted.

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