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    Karnataka High Court asks Franklin MF to not proceed with winding up of schemes without investor consent


    "We are studying the order issued by the Hon'ble Karnataka High Court and will take appropriate steps in consultation with legal experts in the best interest of unit holders," said Franklin Templeton.​​​

    Karnataka High Court has asked Franklin Templeton Mutual Fund to not proceed with the winding up of its debt schemes without obtaining the consent of investors. Franklin Templeton Mutual Fund shut down six of its debt mutual funds on April 23, citing the difficult conditions in the bond market due to the Covid pandemic.

    "We hold that no interference is called for in the decision of trustees to winding up of the said schemes. We hold and declare that the decision of the trustee to winding up the six schemes cannot be implemented until consent from the unit holders is obtained in accordance with Sub Clause C of Regulation 15. Hence we restrain the trustee to take any further steps based on the notice 23 april 2020,and 28th may 2020 issued till the consent of the unit holders is obtained. It will open for trustees to obtain consent of unit holders and to take further steps," the division bench of Chief Justice AS Oka and Justice Ashok S Kinagi stated in their 330 page judgement.

    "The Hon’ble Karnataka High Court has upheld the authority and decision taken by the Trustees to wind-up the schemes under regulation 39(2)(a). As per the judgement, for operationalizing such a decision, approval of the unitholders will be required under regulation 18(15)(c). We are considering the order and will take appropriate steps in consultation with our legal experts in the best interest of the unitholders. Our focus remains on maximizing value for unitholders in these schemes and returning monies as soon as possible," said Franklin Templeton Mutual Fund.

    Franklin Templeton Mutual Fund voluntarily decided to wind up six of its fixed-income debt schemes -- 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 and Franklin India Income Opportunities Fund -- In April. These schemes cumulatively managed assets worth Rs 26,000 crore.

    The fund house was in the process of conducting e-voting to ratify the decision when a group investors managed to obtain a stay from the court.

    Many conservative investors who have put money in these schemes to meet their short-term needs are stuck and very badly looking for a quick solution. Investors cannot sell these schemes and no SIP/STP/SWP will work on these schemes.

    All you wanted to ask about your debt mutual funds after Franklin Templeton fiasco

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    29 Comments on this Story

    A Goyal40 days ago
    Some stupid invsestors have really messed up by causing this delay by going to courts. If court would not have been involved good chunk of money would have already been returned to the investors especially in Ultra short bond Fund. Because of lawyers misguiding investors for their own selfish goals , so many investors have to suffer. We all know how the courts work in India, delay and more delay. The court should have at least allowed for the positive cash holdings to be paid out to the investors. E-voting will take several weeks and what happens if majority investors decide against wind-up. Will FT be forced to open the schemes and if most people put in redemption request in a day or 2, what happens than? Decision of honourable HC is not in best interest of the unitholders as are the actions of some of the unitholders who must also be scratching their heads as to what was the point to go to the court, IMHO.
    N M Rajugopal Shreedhar40 days ago
    FT should return the money immediately to investors , especially the Ultra funds, as most investors believed that their funds were safe in these bond funds
    Arvind Agarwal40 days ago
    While SEBI should take appropriate action against the fund house and its officials based on the forensic audit report, there is no justification for not allowing distribution of the available cash to unit holders who have no real choice to reverse the decision to wind down.
    Unfortunately the courts get lost in the legal maze losing sight of the key issues and the end of justice.
    The Economic Times