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Will some other funds go the Franklin Templeton way as rumours seem to suggest?

The CFMA note on funds passing on losses to investors, while cautionary remains to be substantiated by credible sources or evidence.It is mere speculation at this stage. It is also our view that the current Scripbox recommendations continue to have a credit profile that is suitable for investment.

What is the news?

CFMA (Chennai Financial Markets and Accountability) press release cautions investors; warning that more than 10 Mutual Funds may end up taking the Franklin Templeton route of passing on losses to unitholders.

What’s it all about?

The CFMA – a Tamil Nadu based investor advocacy group has raised concerns around the Mutual Fund Industry. According to information available from their sources; more than 10 Mutual Funds are going down the path taken by Franklin Templeton when they shut six of their funds down in 2020.

As per the latest Karnataka High Court ruling and based on the results of the investor e-voting, Franklin Templeton has been given the approval to close the mutual funds and repay investors on the basis of receipts on liquidation of remaining underlying securities as some securities had already been liquidated. The matter is currently before the Supreme Court.

The CFMA in its press note indicates that in their opinion, the Trustees and Management of the Franklin Funds were let off without being held responsible for the losses that were accrued. They have issued the note with an aim to caution investors and highlight to regulatory bodies the possible repercussion of a ruling that would be favourable to the management of the funds. 

What’s the Scripbox view on the matter?

At Scripbox, we have a process of continuously monitoring the underlying credit quality of the recommended funds. It is our view that the current recommendations continue to have a credit profile that is suitable for investment.

It is our view that the release by CFMA, while a cautionary note by nature, has limited substantial basis and does not provide credible information with reliable (named) sources.

We urge investors to have faith in the Regulatory Bodies and the Judiciary and not let unsubstantiated claims by outside parties determine any investing action.

 

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