Don't Wind Up Six Schemes Without Investors' Consent, Karnataka High Court Tells Franklin Templeton

Franklin Templeton Mutual Fund had shut six debt schemes in India amounting to about Rs 28,000 crore from April 23, citing lack of market liquidity and redemption pressures arising from Covid-19 pandemic.

Don't Wind Up Six Schemes Without Investors' Consent, Karnataka High Court Tells Franklin Templeton

The court said it was open to the possibility of trustees obtaining consent of the unit holders.

The Karnataka High Court, on Saturday, ruled that Franklin Templeton Mutual Fund will need to obtain prior consent of the unit holders before winding up six debt fund schemes. Franklin Templeton Mutual Fund - one of India's most prominent mutual fund houses - had shut six debt schemes in India amounting to about Rs 28,000 crore from April 23, citing lack of market liquidity and redemption pressures arising from the Covid-19 pandemic.

"We hold and declare that the decision of the Franklin Templeton Trustee Services Private Limited to wind up six schemes cannot be implemented unless the consent of the unit-holders is obtained," the division bench of Chief Justice Abhay S Oka and Justice Ashok S Kinagi said, while hearing a petition challenging Franklin Templeton's decision to wind up its schemes.

The six fixed-income and credit-risk funds had large exposures to higher-yielding and lower-rated credit securities. 

The schemes were Franklin India Low Duration Fund, Franklin India Ultra Short Bond Fund, Franklin India Short Term Income Plan, Franklin India Credit Risk Fund, Franklin India Dynamic Accrual Fund and Franklin India Income Opportunities Fund.

Shutting down the funds meant that investors could not make any fresh purchases after the cut-off date of April 23 and existing investments would remain locked until maturity.

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High net-worth individuals, corporate investors and retail investors usually invest in debt funds as part of their high income asset allocation due to higher returns offered by such funds in comparison to bank deposits and easy liquidity.

The court, however, maintained that it was open to the possibility of trustees obtaining consent of the unit holders and taking further steps in accordance with mutual funds regulations.

Responding to the court's order, Franklin Templeton said the court had upheld the decision taken by its trustees to wind up the schemes, but had ordered that approval of the unit holders is required.

Franklin Templeton said in a statement, "We are considering the order and will take appropriate steps in consultation with our legal experts in the best interest of the unit holders."