Franklin Templeton to close 6 India funds: What does it mean for you
Franklin Templeton Mutual Fund has said it would close six yield-oriented, managed credit funds with total assets under management of Rs 25,856 crore in India from April 23 over severe market dislocation and illiquidity caused by the coronavirus pandemic.
“The decision has been taken in order to protect value for investors via a managed sale of the portfolio,” Franklin Templeton said in a statement.
The statement 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.”
Franklin Templeton will now sell the underlying securities of all these funds over time and pay off their investors in a staggered manner.
What are these funds?
Franklin Templeton is shutting these fixed-income and credit-risk funds run, locking in Rs 308 billion ($4.1 billion) of 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 Fund, and
* Franklin India Income Opportunities Fund (FIIOF)
What did Franklin Templeton say?
“Due to the on-going novel coronavirus, or COVID-19, pandemic, liquidity in the bond market has dried up. Yields of debt securities have risen sharply and that has materially diminished the abilities of companies to service their debt. Mutual funds have also been getting a lot of redemption requests. We felt it best under these circumstances to wind up these funds and return the money to investors,” Sanjay Sapre, president of Franklin Templeton (India), said.
“The extension of the lockdown has heightened redemption volumes and reduced inflows to unsustainable levels. The schemes even resorted to borrowings within permissible limits, in line with market practice to fund redemptions. But given the situation, we felt that it would not be prudent to leverage the schemes further,” Sapre said.
When will investors get their money back?
Investors will not be able to withdraw their money immediately or on their own and will have to wait almost as long as the duration of the schemes.
For example, the Macaulay duration for Franklin India Low Duration Fund was 1.2 years as of March. In simple words, investors will have to wait for around one year and 73 days to get all their money back from this scheme.
Similarly, Franklin India Income Opportunities Fund’s Macaulay duration as of March-end was 3.22 years and investors will have to wait for three years and 80 days to get their money back.
What will happen to SIPs, STPs?
The Systematic Investment Plans (SIPs) will stop automatically since Franklin Templeton has stopped subscriptions and redemptions.
If someone had enrolled for Systematic Transfer Plans (STPs), their money is stuck. STP is a facility wherein one invests a lump sum in a debt fund, preferably a low risk one, before one can transfer equal amounts once a week or month in an equity fund of their choice.
The transfers to investors’ equity funds will not take place any more.
If someone still wants to invest in Franklin Templeton’s equity fund, they will have to arrange for funds all over again.
Sapre said that payments will be made in a staggered manner to investors, based on the realisation of funds from the bond issuers and through the sale of the portfolio.
The first set of payments will, however, be made to their borrowers and then investors.