Securities and Exchange Board of India (SEBI) has imposed a fine of Rs 5 crore on Franklin Templeton AMC in connection with its investigation related to the closing of six debt schemes in April 2020.
These schemes were:
- Franklin India Ultra Short Fund
- Franklin India Low Duration Fund
- Franklin India Short Term Income Fund
- Franklin India Income Opportunities Fund
- Franklin India Dynamic Accrual Fund
- Franklin India Credit Risk Fund
The regulator has also asked FT India to refund the investment management and advisory fees collected from June 4, 2018 till April 23, 2020 at 12% per annum, which works out to Rs 512 crore to the unitholders of six debt schemes.
The detailed order can be accessed here.
Further, the fund house has been barred from launching any new debt schemes for two years from today.
From its investigation in this matter, SEBI found that the fund house has committed violations with regards to:
- Scheme categorization (by replicating high–risk strategy across several schemes)
- Calculation of Macaulay duration (to push long term papers into short duration schemes)
- Non–exercise of exit options in the face of emerging liquidity crisis
- Securities valuation practices and
- Risk management practices and investment related due diligence
SEBI found that Vivek Kudva (Director of FT AMC), Roopa Kudva (wife of Vivek Kudva) and Vasanthi Kudva (mother of Vivek Kudva) had cumulatively redeemed Rs 30.70 crore while in possession of material non public information related to the six schemes.
In a separate order, SEBI has imposed a fine of Rs 4 crore on Vivek Kudva and Rs 3 crore on Roopa Kudva for redeeming from their money before the schemes were shut. SEBI has asked them to deposit Rs 22.64 crore into an escrow account. Further, SEBI has asked them to transfer the interest at 12% on the redeemed amount to SEBI Investor Protection and Education Fund.
Vivek Kudva and Roopa Kudva have been restrained from accessing the securities market for one year.
