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Franklin Templeton Shuts Six of Its Debt Funds: Everything You Need to Know

Apr 27, 2020 6:27 AM 3 min read
Editorial

Franklin Templeton Mutual Fund has decided to shut six of its open-ended debt funds, effective April 23rd, citing lack of liquidity in the debt market and unprecedented redemptions in these yield-oriented schemes in the wake of the coronavirus outbreak and the subsequent slump in the Indian economy. 

 

Franklin Templeton Mutual Funds That Have Been Shut

The six yield-oriented schemes in which investments have been stopped are:

 

  1. Franklin India Low Duration Fund
  2. Franklin India Dynamic Accrual Fund
  3. Franklin India Credit Risk Fund
  4. Franklin India Short Term Income Plan
  5. Franklin India Ultra Short Bond Fund
  6. Franklin India Income Opportunities Fund

 

Together these managed assets worth ₹26,000cr ($3,453m).

 

The action is limited to the six funds, which have 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.

 

To figure how risky the funds really are, we also consolidated the data of 6 mutual funds of FranklinTempleton (under winding down) to understand what's sitting in them. Here's a Twitter thread explaining the long and short of it:

 

All other funds managed by Franklin Templeton Mutual Fund in India - equity, debt and hybrid mutual funds - are unaffected by this decision, said the fund house.

 

Franklin Templeton Shuts Six of Its Debt Funds

 

What Does it Mean for the Investors?

Investors in these schemes will not be able to buy or sell these schemes anymore. No SIP/STP/SWP will work on these schemes.

  

When Will I Get My Money Back?

Investors in these funds will have to wait for the fund house to sell its assets and pay the money back. 

 

Franklin Templeton AMC has said that it will publish a Net Asset Value (NAV) for the schemes on a daily basis and eventually communicate more details on an exit strategy.

 

Meanwhile, investors may have to wait almost as long as the duration of the underlying scheme.

 

The average maturity of Franklin Ultra Short Bond Fund is 0.62 years. For Franklin Low Duration, Franklin Short Term Income, Franklin Dynamic Accrual, Franklin Income Opportunities and Franklin Credit Risk that average maturities are 1.46, 2.75, 4.28, 2.55 and 3.08 years (as of March 31st, 2020).

 

For now, Templeton will keep trying to liquidate its portfolios as much as it can. Of the money it receives, the fund house will keep paying all investors, big or small, proportionately and in instalments, assured Sanjay Sapre, President, Franklin Templeton India.

 

In the meantime, mutual fund industry body Association of Mutual Funds in India (AMFI) assured investors that majority of Fixed Income Mutual Funds AUM is invested in superior credit quality securities and schemes have appropriate liquidity to ensure normal operations.

 

What About the Other Debt Funds I am Invested In? Should I Exit?

You might want to conduct a thorough analysis of your portfolio and consult your financial advisor regarding this.

 

However, if you do decide to exist, bear in mind other costs such as exit load and tax. Here's a useful 10 Point Beginners Guide to Mutual Funds

FIN.

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