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SEBI WATCH

Franklin MF court case may put wind-up norms in focus

 

Cogencis, Monday, Jun 8

By Rajesh Gajra

The winding up of six schemes of Franklin Templeton India Mutual Fund has landed in court and this may end up complicating matters for investors as well as market regulator.

While some unitholders have secured a stay from Gujarat High Court on the e-vote and an online meet scheduled on Tuesday to seek approval for the winding up, few have also approached the Supreme Court for a similar stay, according to a report today in Economic Times newspaper.

Currently, SEBI's Mutual Fund Regulations Say That An Open-ended Scheme Can Be Wound Up After Repaying The Amount Due To The Unitholders Under Any One Of Three Circumstances.

The petitioners have claimed that the decision of Franklin Templeton to wind up the six schemes is illegal.

These cases will also bring into focus on the Securities and Exchange Board of India's regulations on the procedure for winding up such schemes. And, the market regulator may, in the near future, be required to amend the norms for complete clarity on the procedure.

Currently, SEBI's mutual fund regulations say that an open-ended scheme can be wound up after repaying the amount due to the unitholders under any one of three circumstances.

The first is when on the happening of any event which, in the opinion of trustees of the fund house, requires the scheme to be wound up. The second is when 75% of the unit holders pass a resolution that the scheme be wound up. And, the third is when SEBI itself directs the winding up of a scheme in the interests of the unitholders.

Given that a major winding up has never taken place before, unitholders may be confused on the procedure.

SEBI and the Association of Mutual Funds in India must, therefore, take an extensive investor awareness drive on the matter.

If a winding up can simply be done in the opinion of the trustees of the fund house then that must be made clear to unitholders.

The exact provision under SEBI's mutual fund regulations on which Franklin Templeton is proceeding to wind up the six schemes also needs to be laid out clearly before the unitholders.

SEBI may also have to tweak its regulations to provide more clarity so that investors are better informed in the future.

What is equally important is to prevent cases like Franklin Templeton from taking place in the first place. SEBI and AMFI must strive harder to prevent mis-selling by fund houses and distributors where debt funds are sold as proxy to bank deposits.

And, SEBI must continue to take to task fund houses for lack of due diligence in investing in debt securities.

Last year, SEBI has taken measures to ensure that mutual fund schemes investing in debt securities do not resort to indirect lending to promoters of companies.

SEBI must continue to emphasise that any investment in debt must be against the cash flows of the issuer and not personal assets like equity stake of the promoter as had happened Essel Group case.

Fund houses had an exposure of around 170 bln rupees in bonds issued by Essel Group that were secured against a pledge of promoter shares of Zee Entertainment. The Essel Group defaulted on a portion of those bonds causing losses to fund houses and at the same time the value of Zee Entertainment shares had diminished.

LATEST ANNOUNCEMENTS

* SEBI asks PACL investors to check status of applications, rectify errors by Jul 31 (PTI)

* SEBI allows Ravichandran to subscribe shares in RIL rights issue (PTI)

* SEBI says working group submits report on SSE (ET)

* SEBI warns TCS to be careful in disclosing material information 

ORDERS, ADJUDICATION PROCEEDINGS

* SEBI censures Astrazeneca Pharma's promoter, Elliot Group (PTI)

* SEBI bars Greencrest Financial Services, directors from capital markets for 3 years (PTI)

* Franklin Templeton moves to vacate stay on e-voting, says SEBI is the nodal agency (Mint)

* SEBI orders probe into debt funds shut by Franklin Templeton (ET)

REGULATIONS (Announced in the past three months)

* SEBI eases norms for disposal of physical gold, silver assets held by MFs (PTI)

* SEBI says new margin funding rules to be effective Aug vs Jun earlier 

* SEBI releases framework for regulatory sandbox (PTI)

* SEBI extends curbs till Jun 25 to contain volatility in equity market 

DATA FROM SEBI

 DateUnit LatestPrevious
FII/FPI net equity investmentJun 4US$ mln   347.44       287.01
II/FPI net debt investmentJun 4US$ mln

(-)86.48

   (-)128.08
DIIs net equity investment#Jun 3bln rupees(-)12.00     (-)2.04
DIIs net debt investment#Jun 3bln rupees   17.47       14.88

IPO/FPO/NFO

* Mahindra MF seeks SEBI's approval for focused equity yojana

* Mahindra MF seeks SEBI's approval for arbitrage yojana 

* HSBC MF seeks SEBI's approval for mid-cap equity fund 

* Principal MF seeks SEBI's approval for large cap fund

SEBI IN NEWS

* SEBI may give in-principle nod to NSE IPO but with conditions (Moneycontrol)

* SEBI mulls easy fundraising for all cos via preferential route (ET)

* IDBI AMC settles Bilt Graphic case with SEBI, pays 9 mln rupees

* SEBI, Centre at odds over easing disclosure norms for listed NCDs (BS)

Sources - Television, Print, or Web Editions of: PTI--Press Trust of India, BS--Business Standard, ET--The Economic Times, Moneycontrol, CNBC TV-18, Mint, BL--The Hindu Business Line, TH--The Hindu, RTR—Reuters, BT--Business Today, IANS--Indo-Asian News Service, IE— The Indian Express, ToI--The Times of India, BB-Bloomberg Quint

Internet links: http://www.sebi.gov.in

#--data not available for Jun 4

End

Compiled by Vijay Malkar

Edited by Arshad Hussain

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