How is Franklin going to distribute the balance resources in the case of the 6 funds that have gone bankrupt in April 2020?

In a first of its kind move by the regulator, Franklin Templeton Mutual Fund has been asked to transfer the accrued distributor commission in the 6 wound-up debt schemes to SBI Mutual Fund. A to9tal sum of Rs.78 crore has been lying in the distributor commission pool and now Templeton has transferred the funds to SBI Mutual Fund which is acting as the official liquidator of these 6 schemes to protect investor interests.

This amount of Rs.78 crore will be added to the NAV and paid out to the unit holders instead of paying them to the distributors. This will result in a loss for the distributors who sold units of those 6 schemes of Franklin Templeton. The argument is that in most cases, there would be evidence of mis-selling, in which case the commission amount should ideally belong to the unit holders and not to the distributors. This is justified in a way.

It may be recollected that in April 2020 Franklin Templeton Mutual Fund had arbitrarily announced the winding of 6 debt schemes. The purported reason was illiquidity in markets and redemption pressure, but the real reason was the low grade quality of the portfolio. Experts believe that since fair practices were not followed while winding up the scheme, it is only logical that the distributors should forfeit these commissions to unit holders.