COVID-19 Impact: Franklin Templeton Winds Up Six Mutual Funds

On Thursday (23rd April 2020), Franklin Templeton informed that it would close six of its debt schemes with the total asset of Rs. 25,856 crore as on 23 April 2020. The majority of holdings across the debt funds are rated AA and below. The decision has taken to protect value for investors via a managed sale of the Portfolio.

The situation came due to large Redemption pressure at a time when liquidity in Indian bond markets has dried up. The foreign investors sold equities in the Indian markets and companies have faced a liquidity crunch.

Recently, the demand for debt scrips has fallen for lower-rated companies. This has led to a crisis in the Market and the investors stayed away from both equity as well as debt market. The drastic fall in the volumes has created fear for the investors.

The authorities of Franklin Templeton said the decision was limited to funds, which have material direct exposure to the higher-yielding, lower-rated credit securities in India that have been most impacted by the ongoing liquidity crisis in the market.

List of Franklin Templeton Debt Schemes that are Closed

Franklin Templeton is closing the below-mentioned six fixed-Income and credit-risk funds. A total locking of Rs. 308 billion ($4.1 billion) of the investors’ money.

• Franklin India Low Duration Fund (FILDF)
• Franklin India Dynamic Accrual Fund
• Franklin India Credit Risk Fund
• Franklin India Short Term Income Plan
• Franklin India Ultra Short Bond Funds
• Franklin India Income Opportunities Fund (FIIOF)

Update on SIP and STP Investments

The SIP will stop spontaneously as the fund houses have stopped subscriptions and redemptions. In case, you have enrolled for STP, then your money will get stuck. The Systematic Transfer Plan (STP) is a mode of investment wherein an investor invests a lump sum amount in a low-risk Debt fund.

From now, the transfers to Equity Funds will not take place. If someone still wants to invest in equity funds, then they will have to arrange for the funds all over again.

Sanjay Sapre, the President of Franklin Templeton shared that- based on the realisation of fund from the bond issuers and through the sale of the folio, the payments will be made in a staggered manner to investors.

On March 31, in India Franklin Templeton was managing assets worth Rs. 1.16 lakh crore. Globally, the fund house has managed nearly $700 billion, which is nearly Rs. 54 lakh crore.

Franklin will share details of the fund closer process to the existing investors. The investors will not be charged for the Management Fee on these funds.

How will Investors get the Invested Funds Back?

Investors will not able to withdraw their money instantly. They have to wait as long as the duration of the scheme. For instance, in Franklin India Low Duration Fund, the fund duration as of March is 1.2 years. So, the moderate time period to get the funds back is around 1 year and 73 days to get money from the scheme.

Likewise, Franklin India Income Opportunities Fund’s Macaulay duration as of March-end was 3.22 years. In simple words, the FIIOF investors have to wait for approximately three years to get all their money back.