Franklin Templeton Investments Were Like Loans, Says SEBI
On Monday, the SEBI barred the fund house from launching any debt scheme for 2 years. It asked to disgorge Rs. 512.5 crore for the violation in context with the shutting down of six debt schemes last year. It has imposed a penalty on the AMC of Rs. 5 crores.
Securities and Exchange Board of India investigated the Franklin Templeton Asset Management Company ( AMC). After which, Sebi announced a disclosure of six debt schemes with assets which were around Rs. 26,000 crore. The fund house invested in illiquid securities and that too without any proper due diligence. Therefore, its investments were “akin to giving loans to issuers”.
“The securities were no doubt, opaque, bespoke and high-risk corporate bonds which were plagued by illiquidity. The covenants of the security were negotiated between the single investor and the issuer. These investments have more common characteristics with loans, due to all these features, with loans than tradable bonds.”, said SEBI in the order.
According to Regulation 44(3) of the Mutual Funds Regulations, a mutual fund should not advance any loans for any purpose. Therefore, on Monday, Sebi barred the fund house from launching debt schemes and also, asked it to disgorge Ra. 512.5 crores for the violation of shutting down of six debt schemes. This was because according to Sebi, the fund house was running debt schemes, which were inspected to Credit Risk Fund Scheme.
FT had not disclosed the strategy of investment till now in high yield securities with the credit rating of AA to A to the investors of the respective debt schemes inspected.