Should you exit Franklin India Mutual Fund Schemes?

Should you exit Franklin India Mutual Fund SchemesShould you exit Franklin India Mutual Fund Schemes?


Franklin mutual funds fiasco started when they have wind up debt mutual fund schemes in April, 2020. Investors who have invested in Franklin Debt Mutual Funds still not received their money yet. Now there is a news on Moneycontrol that in an audit report reviewed by them has several irregularities from Franklin India mutual funds. If you have invested in any of the Franklin equity mutual fund schemes, you might be wondering what to do now. Should you exit Franklin India Mutual Fund Schemes now?

When did Franklin Debt Mutual Funds crisis start?

Due to covid-19, there were redemption pressure on Franklin debt mutual fund schemes. Due to this pressure, Franklin India mutual funds have taken the decision to wind up in debt mutual fund schemes in April, 2020. Due to this action, investors who invested money in debt mutual fund schemes now have to wait till the underlying instruments are matured.

One should note that it is only Franklin India mutual funds which took this decision and the entire mutual fund industry was able to sustain this covid-19 crisis in terms of redemptions.

What are audit report findings which Moneycontrol is talking about?

Here are the summary of key findings in the audit report by Choksi & Choksi submitted to SEBI as per moneycontrol article.

1) Forensic audit has indicated several wrong doings, including insider trading by the key management personnel by Franklin India Mutual Funds.

2) Certain key management personnel have redeemed their funds before the announcement of wind up of debt mutual fund schemes.

3) These debt funds gave favors to specific companies it had invested in by not exercising the put option, despite the suggestions given by the risk management committee to its Chief Investment Officer to do so. A put option is a contract that gives its holder the right to sell a number of equity shares at a pre-determined price, called the strike price, before the option’s expiry. As per the report, fund managers were inconsistent with exercising the put option. With some companies, they executed it, but with some others, they didn’t, despite a major downgrade from category A to category D grade in less than a year’s time.

4) Fund managers were investing in bonds of illiquid companies and were not using the put option. This raises several questions and needs to be answered in Sebi investigation. The rules permit fund managers to execute the put option when investments are downgraded by credit rating agencies.

5) The forensic audit pointed that the firm invested heavily in unlisted debt securities, which were mainly illiquid. Some of those companies were newly incorporated.

Should you exit Franklin India Mutual Fund Schemes now?

If you are the investor of Franklin Mutual Funds, you might be wondering what should you do now.

1) If you have invested in Franklin debt mutual funds, there is nothing you can do. Currently, all eyes are on the Karnataka High Court where a group of investors  are seeking multiple reliefs, including directing the firm to release the money that it owes to investors. One need to wait till we get clarity about debt mutual fund schemes. Even I have invested in one of the Franklin Debt fund and waiting for my money.

2) If you are investing or invested in Franklin equity mutual funds and assume that moneycontrol article is wrong. This is still under investigation with SEBI and the outcome of the investigation could be positive or negative for Franklin India. Can you wait till such time?

3) If you are investing or invested in Franklin equity mutual funds and assume the report is correct. Can we wait for some more time till we get clarity about such findings?. But do you have time to exit by then? In such case, don’t you think that its the time for you to review such investments NOW?

Like I told several times, while everyone is interested to get higher returns through mutual funds, you should be equally interested to protect your mutual fund portfolios.

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Suresh KP

14 comments

  • Nanda

    I’ve invested in US Feeder fund but not sure if I should redeem the fund now, not looking very trustworthy to me anymore.

  • R Ramakrishna

    While calling a spade a spade,you left the choice to hapless investors.Money control is a reliable tv and it beams its findings through cnbctv18.It reported only Choksy associates findings.You frankly admitted having exited templeton india.Your subscribers will follow suit.
    However Templeton India’s US Opportunities Fund is being managed by their principals in USA.The black sheep fund managers of India employed by Templeton have got no role to play in US Opportunities Fund.The rate of return as on date is around 37%.Surely good show.
    But Investors have lost confidence in Templeton and wherever it is possible ,they better say goodbye to the AMC.

    • Hi Ramakrishna, Thanks for your comments and views. Somewhere there are alarming bells now. I am cautioning investors. Yes, finally investors needs to take call. Recall DHFL etc., where everything collapsed within few weeks. Investors were not having any clue and even today they still struggling to get money. It is not apple to apple comparison, but I am talking more from corporate governance issue.

  • DC AGRAWAL

    I CHOOSE EXIT OPTION,THERE EQUITY SCHEME ALSO NOT PERFORMING WELL AS PER PEARS,
    SAME THING NIPPON INDIA ALSO NOT PERFORMING WELL AS PER BENCHMARK.

  • aravind

    Hi sir,
    from past 3 years i am with franklin prima and franklin smaller companies.
    1,3,5 years performance is bad, that to management is not good means better to exit.
    It would be great if you can suggest on it.

    • Hello Aravind, I have posted the facts. I have personally reviewed and exited mutual funds from this fund today. You can review and if you think you cannot take such high risks in this situation, you can exit.

      • Umesh Kumar

        Good Morning Suresh,

        I follow your posts regularly from past 3 years.

        I am investing in Franklin India Savings Fund Retail Option – Direct (Franklin India Savings Plus Fund Retail Option – Direct) – Growth and Franklin Tempelton India smaller companies fund. I will exit both the funds and redeem. Could you please let me know which are the current best mutual funds to invest this redeemed amount as lumpsum. Many thanks in advance. I just wanted your guidance.

        • Investing lumpsum in equity funds is risky. You can invest in liquid mutual fund and do systematic transfer plan every month for next 8 to 10 months. You can pick-up any of the largecap or balanced mutual funds. Search our articles for relevant funds based on your need

          • UMESH KUMAR

            Dear Suresh,
            Thanks for the quick revert.

            Based on above comment, what I understood that I can invest the lumpsum amount in any of the liquid fund like for example Birla SL cash plus and opt for STP to any of the balanced fund for example ICICI pru regular savings fund. Can we stp from aum to other ? And also advise on dividend option from liquid fund vs stp.

            Many thanks in advance.

            Looking forward to your valuable reply

          • No. STP is possible only within the same AMC. If you want to invest in say SBI equity fund, then you need to consider only SBI liquid fund or SBI ultra short term debt fund

  • Ameya

    Hi,
    Thanks for the article. I had sadly invested in Franklin Templeton Tax Saving Mutual fund which ended 2 years ago. I have to wait another year before I’m able to remove my money. Hope things go in favour of the investors.

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