Franklin Templetion : Shuts Down 6 Credit Risk Oriented Debt Funds

Franklin Templeton Mutual Fund has decided to wind up the following 6 schemes  and return the money back to investors albeit with a delay.

• Franklin India Low Duration Fund (No. of Segregated Portfolios – 2)
• Franklin India Ultra Short Bond Fund (No. of Segregated Portfolios – 1)
• Franklin India Short Term Income Plan (No. of Segregated Portfolios – 3)
• Franklin India Credit Risk Fund (No. of Segregated Portfolios – 3)
• Franklin India Dynamic Accrual Fund (No. of Segregated Portfolios – 3)
• Franklin India Income Opportunities Fund (No. of Segregated Portfolios – 2)

Subscriptions and Redemptions have been stopped in the above schemes.

The key point to emphasize is that the realized money will be returned back to investors – extent depends on the valuations at which they are able to sell their underlying holdings. However there will be a time delay in this.

What does it means for the Investors of these Funds?

Franklin India AMC says they have wound down these funds keeping the best interest of the investors in mind. Too many investors were trying to redeem from these funds. This lead to the AMC selling the assets at very poor prices – which is bad for all existing investors.

Now, Franklin will try to sell the papers it holds at attractive prices or wait till they mature. Interest received in the period will be added to the funds’ NAVs. Franklin will pay back investors as and when it sells papers or they mature.

Franklin India claims this decision to be a tough one but also the one which is the best for the investors.

When will the Investors get their money back?

The CEO of Franklin India has said that the investors can expect to get staggered payments of the investments till all the underlying assets are sold/liquidated.

This means the investors won’t be able to get their investments back immediately but will get it back over time. The timeline is not clear yet.

Investors will not be charged any management fees on these funds going forward.

Can Investors redeem their money?

New investments in these schemes or redemptions/withdrawals from these funds will not be possible—effective from 24 April 2020.

The money invested will be paid back to users as and when underlying portfolio instruments mature or the schemes receive money back as interest

Why is this happening?

According to the release by Franklin India too many people had started redeeming from mutual funds which led to inadequate funds at the hand of mutual funds to pay to investors.

Franklin India President said that due to covid-19, new investments in the funds had reduced significantly while redemptions were rising. This led to difficulties in paying for redemptions. The AMC borrowed money (as per SEBI guidelines) to pay redeeming investors.This was unsustainable and would mean redeeming investors would benefit while investors who stayed invested would lose out.

Hence, it was decided that Franklin would wind down these 6 funds to protect the interests of all investors.All orders (investments and redemptions) made till 23rd April 2020 would be honored. Daily NAV updates would also be announced.

This unprecedented move is being taken by an AMC for the first time in Indian history.Franklin also added that all other Franklin India funds are not affected in any manner. The AMC says the move they have taken is to preserve the unit value (NAV) of all the affected funds.

According to the release, there will be a sale of the underlying assets and the proceeds of the sale will be shared in an equitable manner with all unitholders.

Should you worry?

However, you should be worried if your debt portfolio has exposure to credit oriented funds which have

• High exposure to lower rated credit papers
• Facing significant redemptions from investors in the recent months

If yes, you should immediately take help of  your advisor OR you can also speak to  and understand the context and take a decision on these funds.

You can use GIIS Financial tools or Our Android App  for Investment, tracking and Asset allocation planning. 

*Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

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