Franklin Templeton’s Laughable Bluff of Gunpoint Bargaining
According to a media report, the scam-ridden Franklin Templeton Mutual Fund (FTMF) has placed its hands on its holster in a preemptive move to avoid punishment for its actions in India. It has indirectly threated the Indian government that if the market regulator dares to levy ‘unfairly large penalties’ – either by fine or disgorgement, Franklin Templeton may pull out of India. Franklin Templeton’s threat is just too laughable at multiple levels: 
 
Insignificant Role: As usual, data clarifies everything. Franklin Templeton has an insignificant role to play in the Indian mutual fund industry, as data for the past 15 years makes clear. In December 2006, Franklin Templeton was the fifth largest fund house in India, with a 10.8% share of assets under management and figured in the list of top-10 fund houses. State Bank of India (SBI) was seventh with a 7.1% share. There was no Kotak, HDFC or Axis in the list. Franklin Templeton’s assets under management (AUMs) at Rs21,576 crore were 50% more than Rs14,123 crore of SBI. 
 
 
Some 15 years later, Franklin Templeton is barely hanging on in the top-10 list. Its share among the top-10 has dwindled to just 3.9%. Its AUM has grown around four times during this period. SBI, which was two-third Franklin Templeton’s size in 2006, now has an AUM of Rs4 lakh crore, which is just under five times that of Franklin Templeton!
 
HDFC, which was nowhere in the top-10, now has more than four times Franklin Templeton’s assets. Axis, Kotak Mahindra and IDFC have come out of nowhere and pushed Franklin Templeton down the top-10 list. The fact is, Franklin Templeton is slowly becoming an also-ran in the Indian mutual fund industry. It is not critical to India in any sense.
 
Foreign Card: Franklin Templeton (FT) claims that it is one of the few foreign asset managers not to cease operations in India. Somebody should throw these five facts at FT. 
 
One, foreign asset managers add absolutely no value to India. It is not that FT’s equity schemes have been among the best-performing funds year after year. Its debt schemes have been managed with mala fide intentions and had disastrous consequences for its investors.
 
Two, other foreign asset managers quit India because they (wrongly) thought that their business model was unviable after the Securities and Exchange Board of India (SEBI) squeezed out obscene commissions that mutual funds were dishing out from investors’ money to distributors and agents. FT stayed on for business reasons, not as favour to India. 
 
Three, who says we need US financial services in India at all? We should stay miles away from the toxic business models of US financial services firms, where customer-interest comes last, as we have learnt from the global financial crash of 2008. 
 
Four, asset managers do not bring in capital; they take out capital in the form of hefty dividends paid out by their extremely profitable asset management companies; it is a low-capital business and besides, India is rolling in foreign exchange today.  
 
Five, each year, FT makes a multiple of the meager Rs230-odd crore it has brought into India so far. India has nothing to lose if FT goes away. It is FT’s loss.
 
Ready Buyers: I don’t know how Franklin Templeton’s friends and buddies at the Association of Mutual Funds of India (AMFI) are reacting to Franklin Templeton’s quit India threat, but I would be surprised if they are not secretly hoping that Franklin Templeton, indeed, decides to take a walk. A quick takeover of its assets will put to rest, Franklin Templeton’s very American but ludicrous argument that its pullout will lead to job losses.
 
In the early-1990s Jack Welch said India, Mexico and China are the three biggest opportunities. For 30 years, foreign businessmen have been desperate to enter India and make money out of the vast middle-class population. And now, FT, which has no edge in technology or processes, and brings no special value that 20 other asset managers cannot add, is threatening to pull out of India. I am completely flummoxed by FT’s attempt to blackmail India when it just does not have a single bargaining chip! 
 
FT deserves exemplary punishment. Acting as a 'lender' to a defaulter group like ADAG, Essel and Future, instead of acting safely on behalf of investors; buying illiquid and junk bonds and putting them in short-term debt schemes; pulling out over Rs2,000 crore through entities related to top management just three months before winding up is nothing but insider trading and, together, show criminal mishandling of investors’ funds and breach of fiduciary duty. It is time to call Franklin Templeton’s bluff.
 
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    COMMENTS

    nmrshreedhar

    1 month ago

    Our fascination with the "foreign" tag never seems to end--high time FT is shown the door by the regulator, if they don't exit on their own. As Mr.Debashis has rightly said, none of their schemes have given spectacular returns, so they ahvent brought anything new to the investing table, other than lot of hype. I am a victim of their schemes and would rather have my money back -- any company which can't take care of safety of capital doesn't deserve to exist.-- I mean how different is it from the so-called "chit fund schemes" if it can't ensure my capital is intact?

    sureshbajaj09

    1 month ago

    Till few days back management redemptions were shown as @ 20 crores, now suddenly it shoots up to 2000 crores.
    How the jump.from 20.to 2000???
    Inflation, I suppose.

    indranilsinha10

    1 month ago

    Y so angry with FTI ? Any MF co who does wrong will be punished appropriately ... Is Kotak or Axis holier than thou ? Are Indian MFs more law abiding than foreign ones ?? So many MFs sequestered thier illiquid debt papers and investor money is stuck there too..isnt it ?? *Pls focus on what's more critical ie WHEN and HOW are they RETURNING THE MONEY...

    REPLY

    sundarbtw

    In Reply to indranilsinha10 1 month ago

    Can you please tell which other debt fund other than FT has closed down the scheme. Ha ha..

    mohintask

    In Reply to indranilsinha10 1 month ago

    Some vested entities are trying to sabotage the interests of retail investors. They have already managed to delay the refund process through multiple litigations at different courts.

    bajaj3

    1 month ago

    It does desrve exemplary punishment

    Neeraj.office

    1 month ago

    Excellent article ! Whatever one may think, the law and its implementation is paramount and indeed FT has played loose with its fiduciary role. They should be severely penalized for their pls fide actions. This should also serve as another call to AMFI and the other MF AMC's.

    mohintask

    1 month ago

    FT is pioneer in MF business in India. Moneylife is trying to settle scores for some unknown reason. Ultra short and low duration funds have given exeptional returns. This article does not give any clue as to how the money will be recovered. Write something which gives investors peace of mind.

    REPLY

    sucheta

    In Reply to mohintask 1 month ago

    If you read Moneylife regularly, you are bound to be more informed than your message indicates -- also our articles are meant to inform and educate not to give you "peace of mind" . That is not the job of any media house or publication. If you believe we are 'settling scores' the option is not to read, but clearly your motivation or incentive to post such allegations lies elsewhere?

    kd.paranjpe

    1 month ago

    Sir, I think we are getting overly sensitive about the so called threats by FT. We do need global companies coming to India, to bring about a culture of ethical and professional business practices. Nowhere is it said that if foreign companies fall afoul of the law that they cannot be punished. And FT should be punished fair and square under the existing laws. It not the case that a multinational or a foreign investor is expected to add value. It is the market which decides that. It will be a folly to believe that the Indian MFs are all angels out to do only good for the investors. They too are mired with questionable practices that have become the norm of doing business in India. FT has simply adopted these practices as the usual practices to be followed in India. They have no political grand daddies to save them and have to face the usual music. But we must realize the very same FT is a respected MF in the US and every company that leaves India for good may end up bad mouthing Indian systems. The Cairn case is a recent example. This happened with companies in China and India is no exception.

    motumalandi1971

    1 month ago

    FT gave +ve returns, whereas SBI,UTI,Birla,Kotak gave -ve retuns for equity.

    Kamal Garg

    1 month ago

    Yes, Debashish, absolutely bang on. It is very right analysis that most of the foreign entities have not only little but rather no regards to operate within the laws of the land and follow them with severe impunity. It is now better that FT is given a marching orders by AMFI/SEBI and a hefty penalty imposed on them for their cheating, fraud and misdeeds. US based institutions are known for their toxic investment practices and I wonder how the second largest democracy in the world is allowing and accepting such corrupt and illegal activities in their homeland even.

    PETERPATTYSALAZAR

    1 month ago

    So well Written ! Thank you Debashish for ,as usual providing an incisive article, supported, as you say, by the data . These guys should be given exemplary punishment for playing around with the hard earned money of middle class investors who reposed their trust in a MNC brand to their detriment

    suketu

    1 month ago

    nice article.

    hamungel

    1 month ago

    Very Well Written.

    anant.9196

    1 month ago

    When will such white collar looting be brought to book in India? Not only should FT be punished severely they should also be booted out! Wish SEBI and other regulators had the gumption to do this soonest!

    Sudhir Bhimani

    2 months ago

    Good article. Well written. Yes. FT must pack up and leave India. We will be better off without them. We want accountability from every AMC that handles public money.

    tissyjoseph

    2 months ago

    Ask Franklin Templeton to take a walk. Bluddy Fools

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