Around two years ago, in April 2020, Franklin Templeton Asset Management India unexpectedly shut down six of its debt funds overnight. At the time, the fund house said that it couldn't sell its low-rated securities in an illiquid market that had set in as the Covid-19 pandemic was declared, globally. Investors had already started to withdraw their money from debt funds all over the place.
But Franklin Templeton mutual fund found itself much deeper in the hole as the portfolios of its six shut debt schemes were loaded with extremely low credit-rated securities. Naturally, investors were upset because all the six schemes were open-ended. Many other debt funds were witnessing outflows, but none had shut their doors, except Franklin Templeton India. Some investors took the fund house to court.
After multiple court hearings, the Supreme Court (SC) judged that Franklin Templeton ought to have asked investors permission first before winding up. The fund house went back to its unitholders, sought their permission (they voted in majority for a systematic winding up) and the winding up process began, formally. The SC appointed SBI Mutual Fund (India’s largest mutual fund house) as the liquidator of the portfolios. And slowly and surely investors started to get their money back.
Two years later, as of this day, Franklin Templeton has returned much of investor’s money back. A small portion is still stuck, but the fund house is fighting court battles for those. In an exclusive interview to Moneycontrol, Franklin Templeton India President Sanjay Sapre said that Templeton aims to get back on the mutual fund street. Soon, he elaborated, the fund house will launch new equity and hybrid schemes, start approaching distributors and investors and attempt to get back on the shelves of distributors.
The question is: Will investors, distributors and advisors accept Franklin Templeton? Have investors really forgiven them? Can franklin Templeton be trusted once again, with investors’ money?
Today, I am joined by two guests who bring to us word on the street.
Ashish Goel is one of the founding members and mentor of DFDA Network (one of India’s most influential independent distributor networks). DFDA consists of 125 distributors who collectively manage over Rs 30,000 crore worth of assets. In 2003 when DFDA was founded, it was an association of just 10 members with assets under management (AUM) of just Rs 100 crore. Today DFDA has 154 members and counting, spread over 40 cities in India. Goel himself is a mutual fund distributor and owns Vista Wealth in 1993, which he founded. Vista Wealth is among India’s largest mutual fund distributors of India.
Also on podcast today is, Lovaii Navlakhi. Navlakhi is a SEBI- (Securities and Exchange Board of India)- registered investment advisor. He is a senior board member of ARIA or The Association of Registered Investment Advisers. ARIA is a body or association of SEBI-registered investment advisors. ARIA was set up in 2017. Currently, ARIA has more than 200 members across India. Navlakhi himself is a financial planner and he had set up International Money Matters (IMMPL) in Bangalore in 2001. He is the MD & CEO of IMMPL.
Some key takeaways:
“Missile attack with a nuclear bomb head on it. It was not called for. People never expected this would happen”
“Taking away the liquidity out of a mutual funds scheme, which is the most primary objective of investing in mutual funds, is like taking away your fundamental right”
“Franklin Templeton probably did the best thing under the circumstances. If the schemes were left open and withdrawals were allowed, all the large investors would have left and the remaining retail, small investors would have been left with a much higher percentage of bad portfolio.”
“We were big supporters of Franklin Templeton’s accrual (credit) strategy and had brought in a lot of investors. But when the credit blow-ups started happening from late-2018 onwards, and regularly thereafter, we warned the chief investment officer (Santosh Kamath) and the chief executive officer (Sanjay Sapre). We checked with them if it’s time to reduce their exposures to troubled group.”
“Our concerns fell on deaf ears. Some kind of performance arrogance had already set in, who knows. Or perhaps, the damage had already been done and they were stuck big time.”
“The scars will take time to go, probably they will not go for many clients and distributors either.”
“We saw it coming, though no one expected Templeton to shut the schemes. We persuaded many investors to withdraw. Some withdraw, others didn’t. We should have been more forceful, That is our (distributors and advisors) failure too.”
“Franklin Templeton’s brand image has definitely been hurt because its actions were unpresented. People still have bad memories.”
“Investors also withdrew from Franklin Templeton’s equity schemes. I don’t know if this side-effect will go away very easily. It will take a while for people to first get used to investing Franklin Templeton, at the same time being confident that they would get their money back when they need it in future. Once you reach that stage, you look back at the debt fund crisis and see it as a blip in its lifespan. This will take time.”
“Old investors, who’ve made money in the past, will come back with Franklin Templeton. But a majority of investors came in the 2-4 years preceding the crisis of 2020. Those investors are furious; may not come back to Franklin Templeton for another, at least, 7-8 years. And distributors are a reflection of their clients.”
“The trust has gone. In financial industry, it takes a long time to build trust.”“Franklin Templeton has to treat itself as if it’s a new fund house and be patient.”