The Franklin Templeton Mutual Fund Wind-Up

“Investors' money in mutual fund schemes is professionally managed in accordance with disclosed investment objectives and SEBI's mutual fund regulations, with redemptions honoured on demand as is standard for open-ended schemes.”

— Franklin Templeton Asset Management (India) Pvt Ltd, Asset management company operating SEBI-registered open-ended debt mutual fund schemes · 1 January 2020

This reflects the general regulatory and contractual promise of an open-ended mutual fund scheme under SEBI's Mutual Fund Regulations, rather than a specific quotation from Franklin Templeton's own scheme documents, which this entry has not directly reviewed.

That the six debt schemes would remain open-ended, honouring investor redemption requests, and that any decision to wind them up would strictly follow SEBI's Mutual Fund Regulations, including obtaining unitholder consent.

SEBI (Mutual Funds) Regulations, 1996, particularly the provisions governing winding up of schemes and the requirement of trustee and unitholder approval.

In force from 23 April 2020

On 23 April 2020, Franklin Templeton's trustees abruptly wound up six debt schemes — Franklin India Ultra Short Bond Fund, Low Duration Fund, Short Term Income Plan, Income Opportunities Fund, Credit Risk Fund, and Dynamic Accrual Fund — citing severe illiquidity and redemption pressure in Indian corporate bond markets during the COVID-19 pandemic, freezing roughly ₹25,215 crore belonging to about 300,000 investors. An RTI reply later showed Franklin had not sought SEBI's prior approval before announcing the wind-up. Investors and the Karnataka High Court challenged the move; the Supreme Court subsequently directed that unitholder consent be obtained for each scheme's wind-up and appointed SBI Mutual Fund to oversee an orderly recovery and repayment process. On 14 June 2021, SEBI passed an order finding Franklin Templeton had violated mutual fund regulations, directing the AMC to refund roughly ₹512 crore in investment management and advisory fees collected between June 2018 and April 2020 (with interest), barring it from launching new debt schemes for two years, and separately fining the AMC, its trustee company, and several individual executives (including the CEO and CIO) a combined ₹15 crore. Franklin Templeton appealed to the Securities Appellate Tribunal, which granted a partial stay — permitting escrow of ₹250 crore rather than immediate payment of the full disgorgement — and as of the most recent reporting reviewed (August 2023), the AMC had still not launched a new debt scheme and the appeal remained pending. Separately from the SEBI proceeding, the courts' recovery process returned investors more than the schemes' original net asset value: cumulative distributions reportedly reached about 109% of the funds' assets under management as of the April 2020 wind-up date, though only after a prolonged freeze.

As of 1 August 2023

Separately, SEBI's June 2021 order required Franklin Templeton to refund roughly ₹512 crore in fees it had collected on these schemes; that specific disgorgement is under appeal and only partially secured (₹250 crore in escrow) as of the last reporting reviewed.

1. 23 Apr 2020Announcement
   Six debt schemes wound up

   Franklin Templeton's trustees abruptly shut six debt mutual fund schemes, freezing roughly ₹25,215 crore belonging to about 300,000 investors, citing pandemic-driven illiquidity in Indian bond markets.

2. 26 Aug 2020Status
   RTI reveals no prior SEBI approval

   An RTI reply indicates Franklin Templeton did not obtain SEBI's approval before announcing the wind-up, raising questions about the process followed.

3. 3 Dec 2020Milestone
   Supreme Court orders unitholder consent

   The Supreme Court directs Franklin Templeton to hold a unitholder vote on winding up each scheme, rather than proceeding unilaterally.

4. 14 Jun 2021Milestone
   SEBI penalises Franklin Templeton

   SEBI orders a roughly ₹512 crore fee disgorgement, a two-year bar on launching new debt schemes, and a combined ₹15 crore in penalties on the AMC, its trustee, and individual executives, for regulatory violations in the wind-up.

5. 25 Jun 2021Delay
   SAT grants partial stay

   The Securities Appellate Tribunal stays SEBI's order pending appeal, directing Franklin Templeton to deposit ₹250 crore in escrow instead of the full ₹512 crore.

6. 1 Aug 2023Status
   Appeal still pending

   As of the most recent reporting reviewed, Franklin Templeton has not launched any new debt scheme in India, and its appeal against SEBI's order remains undecided before SAT.

This is a regulatory (not criminal) matter. SEBI's June 2021 order found violations and imposed a fee disgorgement and penalties; that order is under appeal before the Securities Appellate Tribunal, which has granted a partial stay. This entry has not confirmed whether SAT has since issued a final ruling.

• The Securities Appellate Tribunal's final ruling on Franklin Templeton's appeal against the June 2021 SEBI order has not been confirmed — this entry's most recent sourced update is from August 2023, when the appeal was still pending.
• Separate reports of an Enforcement Directorate probe and searches of Franklin Templeton executives' homes (March 2023) have not been independently verified or detailed here.
• This entry has not reconciled every investor-recovery figure across sources; the ~109% distribution figure is drawn from Franklin Templeton's own account and has not been cross-verified against an independent audit.