In the first instance of covid-19 impact on debt funds, the trustees of Franklin Templeton India have decided to wind up six open ended debt schemes - 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.
Sharing the rationale, Sanjay Sapre, President, Franklin Templeton India said that the coronavirus pandemic has created liquidity crunch and unprecedented redemption pressure in the debt fund space. “We have been witnessing heightened redemption pressure and reduced inflows in these schemes. It would be extremely difficult for the debt market to generate adequate liquidity to handle these pressures. In our view, normalcy will not be restored in the debt market sooner or later. Hence, we have wound up these schemes to protect value for our investors. It is the only viable means to secure realization. We remain fully committed and aligned with the interests of our investors and aim to assist the trustees to fully exit the managed credit strategy funds at the best possible value.”
With this, the fund house will not allow any fresh subscription and redemption in these schemes with effect from April 23, 2020. This includes purchases or redemptions through SIPs, STPs and SWPs. That means, it would not be possible for your clients to do STP in equity funds if they have invested in any of these schemes.
These six schemes have combined AUM of Rs.26000 crore.
The fund house will return the money to unitholders in a staggered manner based on scheme’s portfolio maturity. The fund house will either wait for maturity of securities or sell securities at reasonable amount without causing impact cost. This essentially means, funds having short term debt securities like short term funds and ultra-short term funds will return the money more quickly than credit funds.
The fund house will not change fund management fees during the period of winding up. However, investors will have to bear other expenses like RTA fees and brokerage if any.
In addition, the side-pocketing pocketing exercised in these schemes will remain intact.
In a press release, Santosh Kamath, CIO, Franklin Templeton Fixed Income India, said, “We have been managing many of these funds for over a decade, and some, for over fifteen years. While these funds are getting wound up, accruals into these funds should continue in the same way as now, as the underlying securities held by these funds remain sound. While for many years, these managed credit funds have carefully invested in and supported growing businesses in India, unfortunately the extreme drop in liquidity in the bond markets, coinciding with very large redemptions following the COVID-19 outbreak has compelled us to make difficult decisions in order to protect the interest of the funds’ unitholders.”
Sanjay further said, “We are committed to our partners and investors. We have taken this difficult decision to protect our unitholders. The current circumstances in the debt market due to covid-19 pandemic do not look good for investors and hence, it is better to restrict the value of funds from further erosion.”
