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SEBI order on Franklin Templeton to refund Rs 512 crore stayed by SAT

Franklin Templeton Asset Management (India) on Monday said the Securities Appellate Tribunal (SAT) has stayed Sebi’s order, whereby the regulator had barred the asset management firm from launching any new debt scheme for two years.

In addition, the regulator had asked Franklin Templeton to refund investment management and advisory fees to the tune of Rs 512 crore, including interest, collected with respect to its six debt schemes which are now shut.

“With reference to the order issued by Whole Time Member(WTM) of Sebi on June 7, 2021, Franklin Templeton Asset Management (India) Pvt Ltd filed an appeal and an application for stay before the Hon’ble SAT. After hearing the parties, the Hon’ble SAT has stayed the operation of the order passed by the WTM,” a Franklin Templeton spokesperson said in a statement.

The matter has been listed on August 30, 2021 for further directions, he added. Sebi in its order found that Franklin Templeton Asset Management (India) “committed serious lapses/violations with regard to a scheme categorization (by replicating high risk strategy across several schemes) and calculation of Macaulay duration (to push long term papers into short duration schemes).” Also, it committed violations in respect of non?exercise of exit options in the face of emerging liquidity crisis, securities valuation practices, risk management practices and investment related due diligence, the regulator had noted.

“As a result of the irregularities in the running of the debt schemes inspected, loss has been caused to the investors. The noticee (Franklin Templeton AMC) was under a statutory obligation to abide by the provisions of the Mutual Regulations and Circulars issued thereunder, which it failed to do,” Sebi had said.

According to Sebi, serious lapses and violations appear to be a fallout of the Franklin Templeton AMC’s obsession to run high yield strategies without due regard from the concomitant risk dimensions, it added. Franklin Templeton MF announced shutting its six debt mutual fund schemes on April 23, 2020 citing redemption pressures and lack of liquidity in the bond market.

The schemes — Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund, and Franklin India Income Opportunities Fund — together had an estimated Rs 25,000 crore as assets under management.

Subsequent to the decision to wind up the schemes, Securities and Exchange Board of India (Sebi) ordered a forensic audit and appointed Chokshi and Chokshi LLP, Chartered Accountants to conduct a forensic audit of Franklin Templeton MF, Franklin Templeton AMC, and trustees, particularly in respect to the six debt schemes.

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Wipro IT Services raises $750 million from an overseas bond sale

IT services major Wipro on Thursday said its step-down subsidiary, Wipro IT Services, has raised USD 750 million from an overseas bond sale. Last week, Wipro had announced that Wipro IT Services will issue US dollar denominated notes worth USD 750 million on June 23. A proposal for the same had been approved by the Board of Wipro IT Services on June 10.

“Wipro IT Services LLC (Issuer)… has raised USD 750 million by the issue and allotment of 1.50 per cent notes (Notes) to qualified institutional buyers…,” a regulatory filing said on Thursday.

The notes are guaranteed by Wipro pursuant to an indenture dated June 23, 2021, executed by the company and the issuer with the trustee, paying agent, registrar and transfer agent appointed in relation to the issuance of the notes, it added.

Wipro has undertaken guarantee obligations in relation to the notes under the indenture. Its potential liability under the guarantee is capped at an amount equal to 105 per cent of the total aggregate principal amount of the notes outstanding from time to time, being initially USD 787.5 million (guaranteed amount), the filing noted.

The filing added that the guarantee will be released upon repayment in full of amounts due under the notes and guarantee, subject to the guaranteed amount. In its previous filings, Wipro had said the date of issue of the Notes is June 23, 2021, and the maturity date is June 23, 2026.

The net proceeds of the notes are intended to be utilised for refinancing existing debt and general corporate purposes.

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Returned Rs 17,777 cr to investors of 6 shuttered schemes: Franklin Templeton MF

Franklin Templeton Mutual Fund (MF) on Thursday said it has returned Rs 17,777 crore to unit holders of six shuttered debt schemes till June 15. This amounts to 71 per cent of assets under management (AUM) as on April 23, 2020, when the fund house shut its six debt mutual fund schemes citing redemption pressures and lack of liquidity in the bond market. Further, cash to the tune of Rs 580 crore was available for distribution as on June 15, Franklin Templeton MF said in a statement.

“The schemes have returned Rs 17,777.59 crore to unitholders amounting to 71 per cent of AUM as on April 23, 2020,” the fund house said.

Under the first disbursement in February, investors received Rs 9,122 crore, while Rs 2,962 crore were paid to investors during the week of April 12, Rs 2,489 crore in the week of May 3, and in the latest disbursement during the week of June 5, investors were paid Rs 3,205 crore.

In March, the Supreme Court accepted the standard operating procedure (SOP) finalised by SBI Mutual Fund to monetise assets and distribute the proceeds to unitholders of the six debt schemes of Franklin Templeton MF. SBI MF has been appointed as the liquidator for the schemes under winding up by the Supreme Court.

Last week, Sebi barred Franklin Templeton from launching any new debt scheme for two years and imposed a penalty of Rs 5 crore for violating regulatory norms in the case of winding up of six debt schemes in 2020. Also, it was asked to refund investment management and advisory fees of over Rs 512 crore (including interest) collected with respect to the six debt schemes. This amount will be used to repay unitholders, as per Sebi order.

Sebi had found several irregularities in the running of the schemes, which impacted the interests of unitholders and the asset management company violated provisions of mutual funds norms.

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Income Tax dept notifies cost inflation index for FY22 for computing long-term capital gains

The income tax department has notified the cost inflation index for current fiscal beginning April 2021 for calculating long-term capital gains arising from sale of immovable property, securities and jewellery. The cost inflation index (CII) is used by taxpayer to compute gains arising out of sale of capital assets after adjusting inflation. The Central Board of Direct Taxes (CBDT) on June 15 notified the cost inflation index for the current fiscal (2021-22).

“The Cost Inflation Index for FY 2021-22 relevant to AY 2022-23 & subsequent years is 317,” the Central Board of Direct Taxes said while notifying the CII number. Tax experts said this inflation index of 317 seems reasonable for the computation of capital gains in the case of sale of jewellery and real estate properties.

“Covid pandemic led to the economy’s contraction, high revenue deficit, widening fiscal deficit, even then overall inflationary graph never spiked like what it used to be before 2013. All this led to a very nominal increase of 16 points in the cost of inflation index over the last financial year, and the inflationary impact of Covid could not be seen on the same,” AMRG & Associates Senior Partner Rajat Mohan said.

This inflation index of 317 seems “reasonable for the computation of capital gains in the case of sale of Jewellery and real estate properties during FY 2021-22, as the prices of both have remained intact even during the Covid times, Mohan added. This CII number would help taxpayers to compute the long-term capital gains on which they are liable to pay income tax.

Nangia & Co LLP Partner Shailesh Kumar said for calculation of taxable income in nature of ‘long term capital gain’, original cost of capital asset (including immovable property, shares, securities, jewellery, etc.) is indexed to level of cost inflation in the year of sale as compared to cost inflation index in year of purchase of asset. Explaining how the CII works in calculating long term capital gains, Kumar said if an asset is purchased in year when cost inflation index was 100 and is sold in an year where such index is 300, then actual cost of such asset will be multiplied by 3 while calculating long term capital gain on such asset.

Normally, an asset is required to be retained for more than 36 months (24 months for immovable property and unlisted shares, 12 months for listed securities) to qualify as ‘long term capital gains’. “By this notification, Government has notified cost inflation index for Financial Year 2021-22 as 317. For last Financial Year 2020-21, this index was 301. The index starts at 100 from Financial Year 2001-02,” he added.

Mohan said since prices of goods increase over time resulting in a fall in the purchasing power, the CII is used to arrive at the inflation adjusted purchasing price of assets so as to compute taxable long term capital gains (LTCG).

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