InvestorQ : Is Franklin Templeton justified in saying that the six funds had to be shut down due to stringent SEBI regulations on unlisted debt?
Arya Nanda made post

Is Franklin Templeton justified in saying that the six funds had to be shut down due to stringent SEBI regulations on unlisted debt?

Answer
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Deepa Salunkhe answered.
5 months ago


Templeton’s global president, Jennifer Johnson, has highlighted that the SEBI guideline allowing only 10% investment in unlisted instruments was one of the reasons for the winding up of the 6 Templeton schemes. However, this argument given by Ms. Johnson may not really be justifiable. Here is why.

· SEBI set a limit of December 2020 to achieve 10% in unlisted debt and even in this case, the grandfathering was allowed for existing investment in unlisted paper.

· While it is true that many of these investments were illiquid, that should not have posed a problem as SEBI had permitted credit risk funds to hold this paper till maturity.

· Experts believe that the problems at Templeton came about because they took added risks by investing in unlisted instruments much more than other AMCs

· Fund managers take investment decisions based on the amount of risk the fund can take and in this case, Santosh Kamath took on undue risks to enhance returns.

· Some of the former SEBI officials have pointed out that if Templeton was confident of the quality of these assets, then it can create a SPV to hold these assets.

· Johnson has also blamed rising redemption pressures, which is true. But the redemption pressure came about due to investors losing confidence in the fund managers.

· In fact, the short term bond fund with 6 months maturity had nearly 30% invested in “A” rated instruments and lower. That was true for most of their funds and not acceptable.