MANU/SPRL/0027/2020

Ministry : Securities and Exchange Board of India

Department/Board : SEBI

Press Release No. : 26/2020

Date : 07.05.2020

SEBI advises Franklin Templeton mutual fund to focus on returning money to investors

SEBI has advised Franklin Templeton mutual fund (FT) to focus on returning money to investors, in the context of their winding up six of their debt schemes.

SEBI has also noted that a section of the media has reported quoting FT that tightening of norms for investment in unlisted debt by SEBI was one of the factors that added to pressure on their debt schemes which resulted in winding up of their schemes.

In this context, it may be noted that 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.

It was observed that unlisted debt securities, particularly bespoke securities in which only a single investor invested, suffered from both forms of opaqueness: opaqueness of structure and true nature of risk on the one hand and lack of ongoing disclosure in respect of financials of the issuer on the other.

In order to address these issues and improve transparency and disclosure of investments in debt securities made by mutual funds with money entrusted to them by investors, SEBI had constituted various working groups. Working groups representing AMCs, industry and academia were set up to review the risk management framework with respect to liquid schemes and to review the existing practices on valuation of money market and debt securities. Further, an internal working group was constituted to, inter-alia, review prudential norms for Mutual Funds for investment in various debt and money market instruments. The analysis along with recommendations of the working groups were placed in a meeting of Mutual Fund Advisory Committee (MFAC) held in June, 2019. (Annex A lists the members of MFAC during that period ).

MFAC had made several recommendations for prudential norms for Investment in Debt and Money Market instruments by Mutual Funds including investments only in listed NCDs and Commercial Papers (CPs) in the interest of greater transparency and accountability.

SEBI Board after deliberations in its meetings held in 2019, and taking into account the recommendations of MFAC........