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CFMA seeks FTMF repay Rs 14K cr balance to unit-holders of 6 shut funds
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SME Times News Bureau | 13 Apr, 2021
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
per cent, 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 on 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 per cent 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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