Franklin Templeton Mutual Fund on Thursday announced it would wind up six yield-oriented, managed credit funds in India, effective April 23, citing severe market dislocation and illiquidity caused by the coronavirus.
“The decision has been taken in order to protect value for investors via a managed sale of the portfolio,” the Fund said in a statement.
The decision was limited to funds which have “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,” the statement said.
The funds included 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, it said.
Manoj Nagpal, the editor of MoneyControl Pro, is livetweeting about the implications of the Franlkin Templeton’s call.
How soon will investors get their money back?
As the schemes have been wound up, investors in these schemes will not be able to withdraw their money, immediately or on their own. Instead, they will have to wait almost as long as the duration of the underlying scheme.
For instance in Franklin India Low Duration Fund, the Macaulay duration as of March was 1.2 years. In simple words, it means the weighted average effective time period to get the cash flows back. Its investors will therefore have to wait around a year and 73 days to get all their money back from this scheme.
Similarly, Franklin India Income Opportunities Fund’s Macaulay duration as of March-end was 3.22 years. This means that FIIOF’s investors will have to wait for close to three years and 80 days to get all their money back.
“Since investors in some of these funds had invested for the long term, it shouldn’t matter if they have to wait to get their entire proceeds back because it will take some time to liquidate all the underlying holdings,” Sapre said.
He hopes the pandemic would come under control soon and the markets revive. In such a scenario, he added that there is a possibility of early liquidation of portfolios, in which case investors may get their monies sooner.
In the meantime, Templeton will keep trying to liquidate its portfolios as much as it can. Of the money it receives, Sapre has assured that the fund house will keep paying all investors, big or small, proportionately and in instalments. In short, you will have to wait for the fund house to keep coming to you with bits and pieces of your redemption proceeds, periodically. There is nothing much you can do in the interim.
Sapre said the fund will not charge asset management fee with effect from April 24, the winding date, for as long as it takes for them to redeem the funds completely. Meanwhile, the segregated portfolios of these schemes will continue independently. Sapre said that these segregated portfolios that were created last year-and-a-half back for some of the schemes’ illiquid underlying securities, where companies had defaulted, will continue to try and recover these investments too. “As and when we get back our money from these companies, the segregated portfolios will pay investors who were eligible to receive the units,” he stated.
What happens to your SIP and STPs?
Since Templeton has stopped subscriptions and redemptions, your systematic investment plans (SIP) will stop automatically.
If you had enrolled for systematic transfer plans (STP; a facility wherein you invest a lumpsum in a debt fund, preferably a low risk one, before you transfer equal amounts once a week or month in an equity fund of your choice), your money is stuck. Your STP has just gone for a toss as the transfers to your equity funds will now not happen.
If you still want to go ahead and invest in the equity fund of Templeton, you will have to arrange for a fresh pot of money. Your Templeton debt fund will pay back your money, but as and when it gets to sell its portfolio and realise the money.