Questions raising lack of Trust on Trustees of FTMF

By Suraj Agrawal, October 31 2020 12:03 PM

Before I pose some very disturbing questions about the so-called trustees of Franklin Templeton Mutual Fund company, let us first understand how it was set up. So, Franklin Templeton Trustee Services Private Limited (FTTSPL) is a limited liability company set up on December 19,1995 as a subsidiary of Franklin Templeton Holding Limited, Mauritius. As per a trust deed dated January 4, 1996, revised on August 28, 2005, FTTSPL is meant to act as trustee for mutual funds, perform the functions and duties of a trustee, agency or fiduciary business.

I have gone through the AUDITOR’S REPORT for FTTSPL for Balance Sheet ending September 30, 2018 (excerpts reproduced at the end), and even they mention that the Management’s Responsibility includes provisions for safeguarding assets of the Company and for preventing and detecting frauds and other irregularities; and presentation of financial statements that give a true and fair view and free from material misstatement, whether due to fraud or error.

Despite that, it is shocking that FTMF closed 6 schemes amounting to Rs 26,500 crore based on final decision of FTTSPL. Interestingly, FTTSPL was advised on closure by FT AMC itself which was appointed by FTTSPL and which also had the power to replace FT AMC! Now the Trustees are trying to seek higher indemnity for protecting their personal liability when the Trustees actually failed to protect the unit holders despite their fiduciary responsibility to the extent of Rs 26,500 crore.

In the Mutual Fund industry, all support system rallies around the Fiduciary agent which are Trustees and this includes AMC, Custodians, Brokers, Banks, marketing agents of Mutual Funds, etc. But the real business is controlled by the AMC which in reality controls the Trustees though actually it is the Trustees that are supposed to be controlling all stakeholders being the Mutual Fund Fiduciary agent.

Now, here are the 9 disturbing questions that I could immediately think of:

  1. Weak Trustee means freedom to FTAMC in marketing units, sale practices, deployment of investments, choice of investing companies, size of investments, timing of market sale, purchase, etc. There can be malpractices in each of these actions provided someone independent oversees these activities. What role did FTTSPL perform here?
  2. If we see the Management’s Responsibility for the Financial Statements as specified by the Auditor of FTTSPL, we may see what is the magnitude of FTTSPL responsibility as a Trustee and still 6 schemes have closed. Why is SEBI not willing to question such blatant lapses by the Trustees?
  3. When FTAMC advised winding up of 6 schemes what assessment was done by FTTSPL which does not have any employees?
  4. What periodical assessment was being done by FTTSPL on FT AMC in the absence of its own employees to fulfil the responsibility of an agent of Unit Holders in fiduciary capacity. Strangely there was no early warning of distress ever given to the unit holders before the scheme closed.
  5. In such a scenario what is the original assessment and independent work that FTTSPL does in fulfilling its fiduciary capacity as agent of 3 lakh unit holders?
  6. What periodic assessment was being done by SEBI in their inspections that they could not assess such a rot in six schemes?
  7. How did SEBI not see such low capitalized and nil staff organization called FTTSPL at the top of the pyramid acting in fiduciary capacity for protecting the asset of Rs 26,500 crore and 3 lakh unit holders who have suffered? The same trustees still continues to oversee the other schemes of FT AMC which have over Rs 70,000 crore of AUM.
  8. Why is SEBI against sharing of forensic audit report since it would have revealed non-compliance in the absence of any fulltime employee, no expense for supervision and legal compliance’s and mere pass-through operation of FTAMC and FTTSPL?
  9. How come nobody has ever questioned FTTSPL’s expenses that are only on account of its highly paid directors which includes profit sharing while unit holders are expected to absorb losses?

Excerpts from the audited report:

  • Employee benefits expense – Nil
  • Depreciation Rs. 178,230
  • Profit related commission to Directors – Rs. 2,550,000
  • Other expenses Rs 4,601,345
  • No immovable properties, included in property, plant and equipment/fixed assets
  • The Company has not granted any loans, secured or unsecured to Companies, firms, LLPs or other parties.
  • The Company has not accepted any deposits from the public.
  • Financials as on as on September,
    • 2018: Share capital - Rs 1,500,000
    • Reserves and surplus - Rs 60,130,055
    • Fixed assets - Property, plant and equipment - Rs 337,566
    • Total revenue  - Rs 22,875,145
Comments(5)
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By Ramkrishna Bishnoi, November 02 2020 03:29 PM
In short, Trustees is a very nice name given to a company that is basically formed to cover-up the sins of FT AMC . From this post, i don't see the so-called trustees performed their supposed duty at all! In fact, it looks as if FTAMC's first protective gear is none other than the Trustees co itself, and worse, for even more protection, they have market regulator SEBI itself to protect them! The message is clear: Investors can go to hell!

By JohnSumu, November 01 2020 06:32 PM
Before Diwali festival season, FTI AMC must take RBI loan of 26,000 crores [ask for easy repayment installments in 25 to 35 years timeframe at an RoI of 0.1% per year?], and repay all investors fully; I feel too. Why are khc juidges so heartless, cold and inhuman to disallow the payments of cash positives to all unitholders. There are so many of us just like myself- who used FTI's debt funds as an FD, and simply dumped all of our savings into these debt schemes; following so-called AMFI-SEBI certified financial advisors, who misinformed us that these funds are as safe as bank FD's if not more better even! They told us all lies that bank FD's are insured for only 1 lac and if a bank collapses you will get back only 1 lac even if your FD is 100 crores and so MF's are safer and safest as they will always give back with interest also?? So, now I am really stuck with no funds to live and wondering when I should simply opt out forever??

By Janardan, November 01 2020 12:54 PM
YES! Why is FTI not taking RBI outlay of 50,000 crores for granting liquidity in MF lower rated bond papers assets of FTI 6 debt funds closed; and refund to all investors soon, I really do not understand?? All they need now is to 'borrow' only 21,000 crores 'soft loan' from RBI and thus, all unitholders can be paid back 100% of their initial investments PLUS penalty fine levy of 18% on the initial invested amounts for not giving liquidity for 8 months until now. FTI is trying to save their asses by selling in secondary markets without taking this loan [saving on interest perhaps?], thereby will be giving HUGE losses to investors fund values finally. FTI wake up fast or else, EOW cases will put Trustees and CEO-MD, CXO's, Fund Managers in prison for economic frauds committed on people of India's hard earned savings!

By Samuel, October 31 2020 08:26 PM
FTI AMC must take 20,000 crores loan from RBI and repay all investors in all 6 schemes immediately or else, top management faces jail term from EOW cases...