Franklin Templeton has created segregated portfolio in its six schemes having exposure to Vodafone Idea papers – 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.
In a press release, the fund house said, “The board of trustees of Franklin Templeton Mutual Fund has approved the creation of segregated portfolio in the schemes. Investors are hereby notified that with effect from January 24, 2020, the securities issued by Vodafone Idea Limited, will be segregated from the total portfolio of the schemes.”
Last week, the fund house has marked down their investment in Vodafone Idea Limited (VIL) to zero. The fund house has also capped fresh inflows in the affected schemes to Rs 2 lakh per day.
The decision to use side pocketing has come after credit ratings downgrade of VIL by CRISIL recently.
Side-pocketing is a practice in which fund houses can segregate risky assets from the rest of the holdings and cap redemptions. Simply put, fund houses can create two funds - one with risky assets where fund house will not allow redemption expecting recovery from stressed assets and another fund with other assets with existing features.
Here is the key impact of this move on your clients:
- The fund house will allot equal number of units in the segregated portofolio as held in main portfolio to existing investors in the schemes
- There will be no fresh subscription or redemption in segregated portfolio. However, AMC will enable listing of units of segregated portfolios on the recognized stock exchange within 10 working days of creation of segregated portfolios to enable transfer of such units
- Upon recovery of money from the issuer in the segregated portfolios, whether partial or full, the fund house will distribute to the investors in proportion to their holding in the segregated portfolios
- AMC will disclose separate NAVs of segregated and main portfolios from the date of creation of segregated portfolios
- Investors redeeming their units in main portfolios will get redemption proceeds based on the Net Asset Value (NAV) of main portfolios and will continue to hold the units of segregated portfolios
