Does Franklin get away clean after this episode? My thoughts have been with unit holders, but I think we need to speak of a SERIOUS fine for Franklin Mutual Fund for bringing this episode to this shameful end. (Thread)
First, SEBI needs to fine Franklin an entire two years of management fees on the shuttered funds. The money needs to be added back as cash to the funds immediately. This should be upwards of 300 cr. and a decent coverage for defaults if any.
Second, SEBI should appoint a different mutual fund - perhaps one that has much better debt experience, and I'm looking at you, IDFC MF, which should take over the closing down operation of all the shuttered funds immediately. Pay the appointed fund a fee from the Franklin fine.
Third, SEBI should put a time frame and policy to release money from the funds: Anything more than Rs. 10 cr. gets paid out at the end of every month, to each individual holder.
Fourth, Franklin should see an impact:
- Disgorgement of fees as a further fine
- Not be allowed to accept any further money into their debt funds for two more years.
- Rules to ensure that this "modified duration" abuse in short term funds using rate reset is cut down.
See our post about this:…
Finally, SEBI needs to have a policy to wind down funds. If a mutual fund house decides that a fund has to be wound down, it cannot be the one winding the fund down. The funds should be immediately marked segregated, and transferred to a different fund house immediately.
Remember this: It's true that in mutual funds, you take the risk. The mutual fund has very little skin in the game. But when they do things like restricting redemptions, we have to ensure there is a big fine, even as a warning to other players.
I forgot to add the MOST important thing: Why is the forensic report not made public? Every unitholder must know what an audit has revealed. I hope the Supreme Court opens it up.

A big failure in the entire episode has been SEBI's hands-off attitude towards Franklin.

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More from @deepakshenoy

9 Dec
Folks - if you can't pay back your EMI, please create a new bank account at a different bank (Kotak, IDFC and a few others allow it to created online) -…

Also notify your lender that you are unable to pay your EMI and to not auto-debit.
Also notify your current bank to not honour any auto-debit from the lender as the loan is under negotiation, and thus to not charge you auto-debit fees.

Then keep zero balance in that account. Get your lender to negotiate, reduce rates, and give you more time.
Read 7 tweets
17 Nov
Laxmi Vilas Bank placed under moratorium. This means they're going to mount a rescue of some sort. It's a small bank but we expect
a) Tier 1/2 bond writedowns
b) Equity capital will need to be infused for a rescue
They have Tier 1 + 2 capital of 148 cr. (march 2020) which would have dwindled further. Even a full write down of Tier 2 bonds - roughly 270 cr. - will not be enough. The bank needs 1300 cr. of capital, at the very least.
Ok, update: RBI does a full merger with DBS Bank India.…

Shareholders wiped out (Shares go to 0)
All depositors will be paid in full, after the moratorium.
Read 11 tweets
31 Oct
The Loan compound interest waiver is interesting. Banks and NBFCs have to pay you money, into your account, the interest on interest calculated for the moratorium period. Even if you didn't take the moratorium or paid back in time.…
And the money has to be paid before 5 November. And you don't need to apply or anything - the bank needs to calculate and pay on its own.

And then it can claim the money back from the government.
Interestingly, even a 0% interest loan will pay you money back!

(A Zero percent EMI is actually at a higher interest rate - check:…)
Read 4 tweets
6 Oct
The Shapoorji default of 100 cr. does not really mean that the SP group doesn't have 100 cr., IMHO.

It's a signal that they want to negotiate. It's basically saying, I'm in default, now let's restructure the loans.
The important point is that they defaulted on Commercial Paper in the money market, not on a loan. A loan default could have been "hidden" within the banking system, because banks get 3 months to negotiate before a loan turns NPA.

They chose to tell the world instead.
Also, there's a little bit that Franklin funds own a good portion of the group bonds, and renegotiating now might be an interesting proposition since holders of those funds might be expecting a haircut anyhow.
Read 5 tweets
11 Sep
SEBI decides that Multicap funds must truly be multicap - so min 25% in large caps, min 25% in midcaps and min 25% in smallcaps.

Smallcaps are companies below roughly 7,000 cr. market cap. Cannot absorb the buying.

We're going to see money flow out of multicap funds..
This could fuel a smallcap rally, even in anticipation. However,
...the SEBI rule indicates that at 75% equity, a multicap fund can't have foreign exposure beyond 25%, which will hurt some.
Read 5 tweets
2 Sep
I have an LIC insurance plan invested 20 years ago. Premium was Rs. 2216 per year. This was a money back policy.

It matures this month. I have to go PERSONALLY visit the LIC office and give documents. Nothing online works.

I will get back Rs. 97,000. That's 6.3% post tax.
Why did I stick with this so long? Insane surrender charges. All past premiums are sunk cost, so ignore that. At any point since 2004 (when I realized how crappy this was), and now, surrendering was a worse choice than just paying up and waiting. Because of high surrender fees.
I thank my stars I didn't take a policy bigger than that. The agent was known to the family, and I was charmed by some calculation at a time when Rs. 97,000 was perhaps a big amount.

Engineer who didn't know the excel RATE function.
Read 4 tweets

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