Franklin refutes allegations of employees redeeming from funds before being shut

In a letter that Franklin Templeton mutual fund sent to all its investors late on Wednesday night, it has refuted the allegations that appeared in sections of media recently. These reports suggested that some key fund house officials withdrew their personal investments in the six debt schemes just before they were wound up. “Employees who made investments in the six schemes continue to hold substantial investments in these schemes,” says the FT statement. Media reports had also said that fund managers at the asset management company (AMC) had failed to exercise the ‘put’ option despite suggestions given by the risk management committee at the fund house. A ‘put’ option in a debt security gives the right to the holder of the security - in this case the fund manager - to sell the security back to the company if it feels the firm is in trouble and may not be able repay the interest or principal.

Deciding on put options

 

“The decision to exercise, or not to exercise a ‘put’ option rests with the investment management team. The team takes various factors and options into account in order to maximize recovery of investment proceeds when making such an investment related decision and exercising a put is not the only available option. All such decisions are taken with an aim to achieve the best possible outcome for our investors. Some reports specifically call out investments made in certain issuers where we did not exercise a put–option. However, these reports ignore the fact that Franklin Templeton has already initiated legal recovery proceedings in the case of some of these issuers,” the letter says.

On April 23, Franklin Templeton announced the closure of six of its debt schemes. The combined size of these six schemes was Rs 25,856 crore as on April 22. The fund house subsequently reached out to its investors for voting on the authority to be put in charge of disposing the underlying securities - over time and as and when the fund house finds the best possible prices for them - and repaying its investors. But as this would take time, up to five years in the case of some schemes, some investors went to court demanding an early resolution, apart from raising other issues. Last month, the Karnataka High Court heard all the parties to this case and a verdict is now awaited.