Distributor commissions for Franklin Templeton’s wound-up debt schemes to go to unitholders

The distributor commissions that were kept aside after the six schemes of Franklin Templeton Mutual Fund (FT MF) were wound-up in April 2020, have been transferred to SBI Mutual Fund to add to unitholders’ kitty, according to people in the know.

Sources say these commissions were held back after Franklin Templeton decided to wind-up the six debt schemes, with as much as Rs 80-100 crore getting accrued in the regular plans. The issue was first reported by CNBC-TV18.

The AUM managed under the Franklin Templeton schemes was frozen and unitholders had lost the ability to withdraw their funds after the wind-up decision.

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SBI Mutual Fund, which has been appointed by the Supreme Court to oversee the distribution of the funds to unitholders, will now be adding these commission-related payments into the Franklin Templeton schemes’ NAVs. And these payments will get distributed to the unitholders when the next round of payments happens.

Regular plans are where unitholders are charged both asset management fees and distributor commissions. That is why the total expense ratios (TERs) of regular plans are higher than that of the direct plans.

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Distributors say while it is fair to pay the commission-related payments to unitholders, as they had lost the ability to withdraw their funds, they say Franklin Templeton should have compensated the distributors through its own pocket.

“Some distributors had significant exposure to Franklin Templeton schemes and had to handhold their investors throughout the wind-up process and the recovery, which also took some time. Distributors played an important role as business partners in the growth of Franklin Templeton, but they have also lost a large part of their income due to the wind-up,” said a distributor, on conditions of anonymity.

“The wind-up decision was not the distributors' fault, but it was the decision taken by Franklin Templeton’s management. So, why penalise distributors?,” said a second distributor.

From April 24, 2020 to March 15, 2022, the six schemes under winding up have received Rs 30,985 crore from maturities, pre-payments, sale and coupons. Cash of Rs 26,098 crore had been distributed in eight tranches to the unitholders, except cases requiring remediation or those with incomplete documentation.