SEBI orders special audit of Franklin’s six debt funds – with ₹30,800 crore wealth locked in, wary investors demand reopening

• The Securities Exchange Board of India (SEBI) has ordered a special audit of the six debt funds shut down by Franklin Templeton in May.
  
• The special audit is aimed at determining whether there was any collusion between the fund house and the companies which issued the bonds, to defraud investors.
  
• In total, ₹30,800 crore of investor wealth has been locked in due to the shutdown of Franklin’s six debt funds.
  
• The market regulator has tasked a Mumbai-based firm Chokshi & Chokshi LLP to undertake the audit.
  

The Securities Exchange Board of India (SEBI) has ordered a special audit of the six debt funds shut down by Franklin Templeton in May. The audit will be undertaken by a Mumbai-based firm Chokshi & Chokshi LLP, which deals in tax consultancy, accounting, risk and due diligence.

According to a report by the Economic Times, the special audit is aimed at finding out whether there was any collusion between the fund house and the companies which issued the bonds, to defraud investors.

“The scope is unlimited. They have to look at all aspects and examine if there have been any regulatory violations, whether the fund house followed the rules in spirit, whether there has been circumvention of rules on fund management,” a source told ET.

The AMC had announced the shutdown of the following six funds in May:

• Franklin India Low Duration Fund
  
• Franklin India Dynamic Accrual Fund
  
• Franklin India Credit Risk Fund
  
• Franklin India Short Term Income Plan
  
• Franklin India Ultra Short Bond Fund
  
• Franklin India Income Opportunities Fund
  

As a result of the shut down of these six debt funds, Franklin has effectively locked out ₹30,800 crore worth of investments.


In its earnings call in May, Franklin Templeton reassured its Indian investors, saying that their money is safe, and that the delay in repayments was because of a cash crunch.

“There has been a dramatic and sustained fall in liquidity in certain segments of the corporate bonds market on account of the COVID-19 crisis and the resultant lockdown of the Indian economy which was necessary to address the same,” Franklin Templeton India said in a statement on April 23.

However, Indian investors continue to have their doubts – several Delhi-based investors have sent a legal notice to Franklin Templeton demanding re-opening of the six schemes which have been shut down.

‘This is not the end of the world’

Gaurav Mashruwala, a certified financial planner, urged investors to avoid knee-jerk reactions.

“Right now, we are in a situation where the economy is not moving. People like you and me should accept the reality, we shouldn’t be complacent. Put the facts out, but the approach I’m taking is this is not the end of the world,” he told Business Insider India.

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