The Unexpected announcement made by Franklin Templeton AMC 23rd April 2020, of winding up six debt funds in their portfolio with a combined AUM of Rs 25,856 crore. And investors cannot do any purchase transactions or redeem their investments.
The Franklin Equity schemes are not affected by this closure and will continue to operate as they are right now. This announcement of Franklin AMCS is limited to specific debt funds only. Although these funds were a favourite of many advisors and investors.
Which are these six debt Schemes?
- Franklin Ultra Short Bond Fund
- Franklin India Low Duration Fund
- Franklin India Short Term Income Plan
- Franklin India Dynamic Accrual Fund
- Franklin Income Opportunities Fund
- Franklin India Credit Risk Fund
Due to COVID-19 pandemic crisis, when the India went into lock-down, some of the papers held in these funds became illiquid in the debt market rapidly. This AMC is having very large to Vodafone-Idea, because of the Vodafone issue, the redemption in these funds had increased suddenly by people worried about the safety of their money.
Franklin Templeton AMC being forced to ask money from the Banks to honour the all withdrawal request from the investors which couldn’t be sustained when it reached its maximum limit.
When the Fund house found the position unsustainable and their inability to sell adequate matching bonds, they decided to close the schemes for both purchase and redemption activity.
Funds having more exposure to lower credit quality securities could also face issues. Smaller fund size having exposure to credit securities could mean more liquidity stress in case of redemptions.
The AMC will sale of their investments and return the money to investors. May be AMC will announce the timeline for this shortly. There might be possibility that return payments to investors will be triggered monthly basis. when the Fund receives meaningful cash flows from the underlying bonds the same would be directly credited to the investor’s bank account. Investor must be patient and wait for the fund house to sell the securities.
The Franklin incident is an eye opener for all investors and it is necessary to review your debt portfolio on a regular basis. An investor must be prepared for Low to Medium level of risk when they invest in Debt Mutual Funds.
We recommend you to consider portfolio quality as well as liquidity profile of our credit funds to determine whether we are capable of continuing normal operations in current challenging times.