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Franklin Templeton investors mull action

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Options for investors include moving the high court, SEBI and even approaching the SEC

Franklin Templeton Mutual Fund, which was forced to wind up six debt schemes with assets worth nearly ₹26,000 crore last month, may well have initiated the process to refund investor money, but investors are mulling their own options to act against the fund house.

According to persons familiar with the development, a few investors are contemplating moving the high court or writing to the Securities and Exchange Board of India (SEBI), while some are even planning to make a representation to the Securities and Exchange Commission (SEC) for the parent entity’s alleged lack of supervision. On April 23, Franklin Templeton MF announced the abrupt closure of six debt schemes, attributing the decision to underlying illiquidity in the market for low-rated debt instruments. Thereafter, in a note to investors on May 15, Sanjay Sapre, president, of Franklin Templeton Asset Management (India), said while the decision to wind up the schemes was the only “viable way to preserve value”, the fund house was “committed to ensuring an orderly and equitable exit for all investors at the earliest possible.”

Lawyers specialising in the securities market said investors could drag the fund house to court or write to the SEBI seeking formal action against the fund house.

“Investors are likely to approach the high court as well as the Ministry of Finance, in addition to requesting SEBI to ensure their interests [were protected],” said Sumit Agrawal, partner, Regstreet LawAdvisors and a former SEBI official.

“Miffed with what a Franklin Templeton global executive said, SEBI issued an advisory, which is neither here nor there in law, as it is neither a circular nor a specific order under section 11/11B which SEBIuses frequently.

“While this unusual advisory is well-intended for investors, it creates more questions than answers. Onedoes not know the implication or consequences of it. There is no procedure or timeline provided; it does not assuage investors’ concern on the redemption value. It is unclear if SEBI is overseeing internal processes of FT and steps forward,” added Mr. Agrawal

On May 7, the regulator issued a statement advising Franklin Templeton MF to focus on returning investor money while stressing the point that regulations were not responsible for the closure of the schemes.

“Investors can write to SEBI asking [for] action against Franklin Templeton Mutual Fund,” said Anil Choudhary, partner, Finsec Law Advisors. “After that, if they feel the regulator is not taking proper action and they feel aggrieved, they can move the high court, [which] can direct SEBI to investigate the matter in a time-bound manner,” he added.