The Securities and Exchange Board of India (Sebi) on Thursday asked Franklin Templeton Mutual Fund (FT), which closed down six of its debt schemes, to focus on returning money to investors “as soon as possible”.
Sebi’s advisory to FT follows the company’s CEO Jennifer Johnson’s statement shifting the blame for the recent winding down of six schemes — with a corpus of Rs 28,000 crore — on to the markets regulator’s October 2019 decision to not let funds invest more than 10 per cent in unlisted instruments. “Despite the regulations being clear, some mutual fund schemes seem to have chosen to have high concentrations of high risk, unlisted, opaque, bespoke, structured debt securities with low credit ratings and seem to have chosen not to rebalance their portfolios even during the almost 12 months available to them so far,” Sebi said in a statement.
“In light of credit events since September 2018 that led to challenges in the corporate bond market, a need was felt to review the regulatory framework for mutual funds and take necessary steps to safeguard the interest of investors and maintain the orderliness and robustness of their investments,” Sebi said. The Indian Express had earlier reported that FT’s credit risk schemes had invested in several lowly rated instruments and lesser known companies.
In a circular dated October 1, 2019, Sebi provided a timeline to comply with the investment limits for unlisted NCDs as 15 per cent and 10 per cent of the debt portfolio of the scheme as on March 31, 2020 and June 30, 2020, respectively. These dates were subsequently extended to September 30, 2020 and December 31, 2020, respectively, in view of COVID-related disruptions, Sebi clarified.
In an investor conference call, Johnson had said the high-yield market is still very immature in India. “So we’ve had a large fund – it’s actually six funds that were invested with a lot of this kind of private debt. And in October of 2019, unfortunately, Sebi came out with new guidelines saying that any investments in unlisted instruments, you can’t have more than 10 per cent in a fund, and you can’t trade them. So that orphaned about one-third of our fund there,” the FT CEO said.
However, NS Venkatesh, Chief Executive, Association of Mutual Funds in India, said that measures taken by the Sebi over the years, including one on October 19, have deepened the debt markets.
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines