The Supreme Court (SC) has directed SBI Mutual Fund to hold back the next tranche of payments to investors of Franklin Templeton Mutual Fund (FT MF) for the time being, after mutual fund distributors’ body – Foundation of Independent Financial Advisors (FIFA) – moved the court seeking payment of distributor commissions.
The SC has not passed any order in the matter, but would want to take a look at FIFA's appeal. The top court had last year appointed SBI Mutual Fund to oversee the wind-up of FT MF's six debt schemes and transfer funds to investors as the recovery progresses.
The next tranche of payments was going to be around Rs 530 crore.
FIFA had approached SC as the distributor commissions that were accrued in the wound-up schemes of FT MF after April 2020 were transferred to SBI Mutual Fund to add to the investors’ kitty.
Distributors say no provision was made to protect the interests of distributors.
“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, as the commissions were accrued, but never paid out to us,” said a distributor, on condition of anonymity.
“Why penalise distributors when the wind-up decision was not the distributors' fault,” said a second distributor.
These commissions were set aside by FT MF after it had decided to wind up the six debt schemes in April 2020, with as much as Rs 80-100 crore getting accrued in the regular plans. The market regulator SEBI had directed for the commissions to be set aside. The issue was first reported by CNBC-TV18.
The AUM managed under the Franklin Templeton schemes was frozen and unitholders could not withdraw their funds.
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 direct plans.So far, cash of Rs 26,098 crore has been distributed in eight tranches to the unitholders of FT MF, except for cases requiring remediation or those with incomplete documentation.