Why Franklin closed 6 funds
What has Franklin Templeton Mutual Fund done?
- Franklin Templeton Mutual Fund has decided to wind up six debt funds with combined assets under management of almost ₹26,000 crore. It said this had been done on account of illiquid, low-rated instruments in their portfolio.
- The schemes that have been shut are Franklin India Low Duration Fund, 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.
- Some of the schemes that were closed had direct exposure to high-yielding securities across the rating spectrum but the instruments rated below ‘AAA’ were the most impacted.
- Investors will not be able to redeem their investments for the time being as the fund house has barred both purchases and redemptions.
- The liquidation of the assets and the funds with the shortest duration would be liquidated at the earliest.
- It has, however, added that selling all the securities in the market immediately would hit the valuation hard and hence, it would evaluate the opportunities once the COVID-19 situation improved and liquidity returned to the market.
- While this would definitely impact investor sentiment and debt schemes could see a spurt in redemptions, the mutual fund industry has been quick to point out that the Franklin Templeton issue was a one-off instance and not an industry-wide phenomenon.
- The Association of Mutual Funds in India (AMFI), the industry body of fund houses, has said that credit risk funds — the worst affected of the lot — constituted a mere 5% of the overall debt schemes.
- Also, a bulk of the assets were rated at least AAA or above. AMFI also said while regulations allowed mutual funds schemes to borrow up to 20% of their assets to meet liquidity needs for redemption/dividend pay-out, only four funds, out of a total of 42, had borrowings aggregating to ₹4,427.68 crore.