Franklin Templeton: A sordid saga

Many investors in mutual funds opt for debt funds because they believe them to be safe. But as the story of six Franklin Templeton India debt funds shows, it all depends on the risk appetite, assessment and integrity of the fund’s managers. To be sure, the pandemic’s impact on the economy was the factor that triggered the closure of the six funds last April, but as an order from stock market (and mutual fund) watchdog, Sebi, explained on Monday, there were other factors too. The order (which Franklin Templeton will challenge) points to the information asymmetry that allowed a senior executive at the company and his family to withdraw their investments in the six funds — shortly before they were closed. While investors have received around 27% of their investments in these funds, and will likely receive at least 60% in total (that’s the amount that’s come back to the funds), there are lessons in this sordid saga.

The first lesson is for investors. Many may have been drawn to the generic safety of debt funds and the specific attractiveness of Franklin Templeton. This approach was clearly flawed because it ignored what the funds were investing in. The second is for the fund managers, with revelations of significant gaps in the due diligence process. The third is for regulators. Details of how Franklin Templeton ran its funds, and how its senior executive Vivek Kudva and his wife Roopa Kudva, who runs the impact investment firm Omidyar Network in India, exited the funds just before their closure point to possible areas that require monitoring, if not regulatory change. Sebi’s findings are also bound to raise questions of propriety and probity around the behaviour of the Kudvas, but that is beyond the regulator’s purview and a matter between them and their respective organisations.