MUMBAI :
Reopening for transactions the six debt schemes of Franklin Templeton that had been wound down can have a contagion threat on your entire mutual fund business, the Securities and Change Board of India (Sebi) mentioned in its submitting for the Franklin Templeton case in Karnataka excessive court docket. The court docket is listening to the 4 circumstances filed by traders who challenged the fund home’s determination to wind down the six debt schemes with out the consent of unit holders.
The traders have additionally urged the court docket to intervene in order that the schemes are reopened for transactions, together with redemptions and subscriptions.
The excessive court docket will start listening to the arguments on 6 August.
Franklin Templeton had shut down its six debt schemes on 23 April, following extreme illiquidity in underlying bonds and redemption pressures. Petitions filed in Gujarat excessive court docket on three June and eight June had obtained a keep on the e-voting course of, which might have began the liquidation and monetization of underlying bonds current within the portfolio.
The method of refund to Franklin’s 300,000 traders can begin solely after liquidation, in line with Sebi rules.
The market regulator, which is a respondent within the case, mentioned if the Gujarat excessive court docket keep just isn’t vacated, the trustees must reopen the schemes for transactions and that might result in all unitholders inserting 100% redemption requests instantly. Mint has reviewed a replica of the affidavit.
“To satisfy the redemption request the mutual fund must misery promote securities at a really deep low cost as the entire market now is aware of the misery,” mentioned Sebi within the affidavit. “A number of the bonds could be offered at a negligible value,” it mentioned.
“Misery promoting of underlying bonds would set up a brand new, a lot cheaper price of those bonds out there. This may carry down the NAV (internet asset worth) of all mutual fund schemes, which has these bonds.”
The market regulator raised apprehensions that in such a state of affairs, traders may even put in redemption requests for schemes of different fund homes. These schemes would additionally have to resort to misery promoting of different bonds of their portfolios, it mentioned.
“This might create a widespread contagion impact throughout your entire mutual fund business and hurt the curiosity of traders at massive,” Sebi mentioned.
Compared, winding up of those six schemes will result in preserving worth for all unit holders and equitable exit to all traders, Sebi contended.
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