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Does Franklin get away clean after this episode? My thoughts have been with unit holders, but I think we need to speak of a SERIOUS fine for Franklin Mutual Fund for bringing this episode to this shameful end. (Thread)
First, SEBI needs to fine Franklin an entire two years of management fees on the shuttered funds. The money needs to be added back as cash to the funds immediately. This should be upwards of 300 cr. and a decent coverage for defaults if any.
Second, SEBI should appoint a different mutual fund - perhaps one that has much better debt experience, and I'm looking at you, IDFC MF, which should take over the closing down operation of all the shuttered funds immediately. Pay the appointed fund a fee from the Franklin fine.
Third, SEBI should put a time frame and policy to release money from the funds: Anything more than Rs. 10 cr. gets paid out at the end of every month, to each individual holder.
Fourth, Franklin should see an impact:
- Disgorgement of fees as a further fine
- Not be allowed to accept any further money into their debt funds for two more years.
- Rules to ensure that this "modified duration" abuse in short term funds using rate reset is cut down.
- Disgorgement of fees as a further fine
- Not be allowed to accept any further money into their debt funds for two more years.
- Rules to ensure that this "modified duration" abuse in short term funds using rate reset is cut down.
See our post about this: https://www.capitalmind.in/2020/04/how-debt-funds-bluff-regulations-and-what-sebi-can-do-to-fix-it/
Finally, SEBI needs to have a policy to wind down funds. If a mutual fund house decides that a fund has to be wound down, it cannot be the one winding the fund down. The funds should be immediately marked segregated, and transferred to a different fund house immediately.
Remember this: It's true that in mutual funds, you take the risk. The mutual fund has very little skin in the game. But when they do things like restricting redemptions, we have to ensure there is a big fine, even as a warning to other players.
I forgot to add the MOST important thing: Why is the forensic report not made public? Every unitholder must know what an audit has revealed. I hope the Supreme Court opens it up.
A big failure in the entire episode has been SEBI's hands-off attitude towards Franklin.
A big failure in the entire episode has been SEBI's hands-off attitude towards Franklin.
