Franklin Templeton Mutual Fund unconditionally apologizes to Sebi

The Franklin Templeton Mutual Fund on Friday offered an unconditional apology to market regulator Sebi over the comment from its senior official that the sudden regulatory changes were to be blamed for its sudden decision to liquidate six debt mutual fund schemes. The fund house claimed that the media quoted Jenny Johnson, Franklin Templeton’s president and CEO, out of context, before offering an apology to the market regulator.

“We deeply regret any inadvertent snub that this may have caused to Sebi’s esteemed offices, whom we have always held in the highest esteem and unconditionally apologize for the same,” the fund house said in a notice.

“It is clarified that some media outlets in India have quoted Ms. Johnson out of context, which diluted the essence of her responses. The headlines and articles wrongly suggested that Ms. Johnson stated that Sebi’s guidelines on unlisted securities were the main reason for the decision to liquidate the schemes. This is not correct in fact nor is it supported by the comments made during the conference call, ”said Franklin Templeton.

Johnson was referring to Sebi’s mandate to limit mutual funds’ exposure to unlisted non-convertible bonds (NTCs) to 10% of the corpus of the schemes.

In a conference call this week, Franklin Templeton’s president and CEO said the rule “orphaned” one-third of its funds, as these non-listed NCDs could not be traded after the circular.

“In India, anything below the AAA rating is considered non-investment grade. And the high yield market is still very immature there. So we’ve had a big fund … actually there are six funds that were invested with a lot of this type of private debt. And in October 2019, unfortunately, Sebi came out with new guidelines saying that any investment in unlisted instruments cannot have more than 10% in a fund, and that it cannot trade them, “Johnson told analysts.

“It was really about selling those assets in a liquidation sale and very few buyers because this regulation does not allow trade,” Johnson said on the conference call.

The fund house said Johnson made these comments in a specific context.

“In response to a question about the liquidation of six schemes offered in India, Johnson provided general background on Franklin Templeton’s experience in the Indian market as it existed prior to covid-19. The reference to the unlisted securities regulations was intended to be part of these background statements to provide context to an audience unfamiliar with Indian markets, ”the fund house said.

Sebi did not welcome the comments from Franklin’s global CEO. “Despite clear regulations, some mutual fund schemes appear to have chosen to have high concentrations of bespoke, opaque, opaque, high-risk structured debt securities with low credit ratings and appear to have chosen not to rebalance their portfolios, even during the 12 months available to them so far. In the current scenario, Franklin Templeton should focus on returning investors’ money as soon as possible, ”said the market regulator.