Franklin Templeton Winds Down Six Credit Schemes Citing Illiquidity 

Franklin Templeton Mutual Fund has wound up six yield-oriented, managed credit funds from April 23 citing “severe market dislocation and illiquidity” caused by the Covid-19 pandemic.

“This decision has been taken in order to protect value for investors via a managed sale of the portfolio,” the asset manager said in a statement. The action is limited to funds with 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”, it said.

“The decision ... presented the only viable means to secure an orderly realization of portfolio assets,” Sanjay Sapre, president at Franklin Templeton India, said in the statement. “Significantly reduced liquidity in the Indian bond markets for most debt securities and unprecedented levels of redemptions following the Covid-19 outbreak and lockdown has compelled us to take this decision.”

The wound-up schemes include:

• 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
• Franklin India Income Opportunities Fund

All other schemes managed by Franklin Templeton Mutual Fund in India—equity, debt and hybrid—will remain unaffected by this decision, the asset manager said.

Sunil Jhaveri, founder and chairman of MSJ MisterBond, told BloombergQuint that asset management companies had to borrow or sell liquid assets to meet redemption obligation. “Hence, this step has been taken in order to protect investor interest. There shall be no fresh investments or redemption in these schemes and investor will receive their money back as and when liquidity is available to the AMC by either selling securities or receiving maturity proceeds.”

According to Vijai Mantri, founder of JRL Money, this development will have far-reaching implications for the mutual fund industry. “In mutual funds, returns are market linked and can be volatile in the short term but liquidity for investors was never in doubt. This development has put that fear in the mind of investors.”

Mantri said the industry will learn its lesson the way it did for equity schemes in 2000 but winning investor confidence back will take time and a lot of efforts. “The industry also needs to work to put up better risk framework and more vigilance from trustees is the need of the hour.”