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Franklin India Short Term Income Fund

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Franklin India Short Term Income Fund

All through Franklin Templeton Asset Management (India) Pvt. Ltd's turbulent period in 2015, when the first signs of a credit default—and its disastrous impact on mutual funds — came and then later when the fund house's own debt schemes sold their own holdings in Jindal Steel and Power Ltd (JSPL) debt securities at a loss; we had held on to Franklin India Short Term Income Fund (FSTIF) in Mint50. FSTIF was its only debt scheme in Mint50. Reason: despite a high-risk portfolio of low-rated securities that could spook out the ordinary investor, we had faith in fund manager Santosh Kamath who had otherwise managed the portfolio deftly, leaving aside the JSPL fiasco. Its 1-year return for most weeks ending in 2017 was around 10-11%; one of the best in the category. Of course the fund took very high risks to achieve that, something not all funds would—and rightly so— be doing. So what went wrong? According to Franklin Templeton AMC's annual report for the year ending September 2016 (October to September calendar), it turned out that the AMC had bought over JSPL's papers from the debt schemes of Templeton in 2016 At the time, the AMC had not disclosed this.

The AMC bought the paper from the scheme, at what seemed like a discount. Plus, it played the dual role of the price setter as well as the buyer (instead of say, appointing an external valuer). This left a bitter taste in our mouth.

The fund house may have ticked the regulatory boxes, but this raises corporate governance issues, especially when, according to news reports, two other fund houses recently took some companies to the National Company Law Tribunal for defaulting on their payments.

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