Turkish Parliament Approves 1 Million Lira Interim Payouts for Troubled Fund Investors

By Grace Kim

Turkey's Parliament approved legislation on Oct. 22 allowing interim payments of up to 1 million liras to eligible investors in funds ordered into liquidation. The law also sets a recovery framework targeting the companies and individuals responsible for the losses.

The measure takes effect after presidential approval and publication in the Official Gazette. It covers funds that the Capital Markets Board (SPK) ordered into liquidation on Sept. 17 and whose liquidation remains unfinished.

Who qualifies for the interim payments?

An amendment adopted during parliamentary debate widened the scope. It now includes investors whose redemption orders were submitted on or before Sept. 17 but could not be completed because the funds defaulted or stopped publishing unit prices.

The payment formula is straightforward. Interim payments rest on investors' actual cash deposits and withdrawals, without inflation adjustment, and count against the final settlement.

• Investors with net investments below 1 million liras may receive that full amount.
• Investors above the threshold qualify for a maximum of 1 million liras.
• Except for money market funds, payments cannot exceed the value of investors' holdings calculated for the payment date.

If available cash runs short, the SPK has two options. It may prioritize investors with the smallest net investments, or set a common minimum interim payment for all.

Takeaway: Eligible investors can recover up to 1 million liras now, deducted later from their final settlement.

Who bears the losses?

The legislation places primary responsibility for losses on the portfolio management companies that founded or managed the funds. If recovery from those companies proves insufficient or impossible, liability extends further.

Individuals and companies identified by the SPK as responsible, including those acting jointly with them, become personally liable at that stage. The Savings Deposit Insurance Fund (TMSF) will pursue recovery from their assets, holding proceeds in separate accounts for each fund.

Where the TMSF acts as trustee, it may sell assets before court proceedings conclude. The SPK may also authorize alternative asset sales, including off-exchange transactions, to protect investors' recovery values.

The law allows voluntary returns of gains exceeding an inflation-adjusted benchmark. But there is a hard exclusion: those the SPK finds to have participated in market abuse, insider trading or manipulation receive no payments at all.

Where fund assets fall short of pre-liquidation valuations, net investment calculations for the final settlement will include an inflation adjustment based on the average change in consumer and domestic producer price indices.

Takeaway: Portfolio managers carry the loss first, with personal liability as the backstop, and wrongdoers are cut out entirely.

How far has the liquidation progressed?

Cash payments and asset transfers have reached 49.7 billion liras across 55,755 accounts, the Communications Directorate said after an Oct. 22 meeting of the Fund Coordination Board chaired by Vice President Cevdet Yılmaz.

The number of funds still in liquidation has fallen from 131 to 47. At Hedef Portföy, liquidation of 18 of its 31 funds was completed by Oct. 21, with 8.9 billion liras paid to 10,008 accounts. Work continues on the remaining 13 funds.

Takeaway: Nearly two-thirds of the liquidation caseload has closed, but 47 funds remain in process.

What is happening in the criminal probe?

The criminal investigation continues in parallel. Five more suspects, including former ruling Justice and Development Party (AKP) lawmaker Ertan Aydın, were detained. That brings the number taken into custody in the latest operation to 31.

A court has ordered 11 suspects remanded in custody.

Takeaway: The detentions signal that criminal exposure, like civil liability, is still expanding.