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SEBI ensures mutual fund executives can’t lay hands on their own investments unfairly in Franklin Templeton case

Fund managers and senior officials have to seek numerous permissions before investing their money. These steps are taken to make sure they don’t front-run or use inside information to their advantage.

Vivek Kudva, Head of Asia-Pacific distribution at Franklin Templeton, and his wife Roopa Kudva, withdrew Rs 30.70 crore from the six debt funds, days before they were wound up. Kudva also withdrew his mother’s investments. The Securities and Exchange Board of India (SEBI) concluded in its investigation that he knew about the poor state of the six debt schemes.

After senior executives give a written request of which stock and how much they want to buy, the compliance officer seeks the approval of all the fund managers. Only then the key official can buy the share. The permission is valid for just seven trading days.

Any share that the fund house has traded in the past 15 days is out of bounds, till the 15-day ‘cooling period’ is over. Once bought, they cannot sell the share for at least six months. From 2015, top officials are also now required to submit a trading plan that specifies the shares that they wish to buy or sell over a period of 12 months.

Fund managers and key officials don’t need any prior approvals if they wish to buy or sell MFs. They just need to inform their fund house within seven days of buying a scheme. Employees have to hold the units for 30 days; exemptions are liquid and money market funds. They cannot take profits – they can sell or redeem if there is a loss.

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Sindhu Nagaraj

Global Business Line Team
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