The six schemes, namely, 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 cumulatively manage assets worth ₹26,000 crore.
Several retail, HNI and corporate investors park money in debt funds due to higher returns as compared to bank deposits, easy liquidity and tax benefits of indexation if they remain invested for three years. With the fund house deciding to wind up these schemes, these open-ended schemes, which are available for buying or selling on a daily basis on every working day, will not be now available.
Starting April 24 existing investors in the scheme will not be able to withdraw their investments, make fresh purchases, do transfers to equity schemes or make systematic withdrawals to meet their monthly expenses.
Many retail investors and HNIs who invest in these schemes as part of their fixed-income asset allocation will be hit as the money will be blocked and no liquidity will be available in their portfolios. “Significantly reduced liquidity in the Indian bond markets for most debt securities and unprecedented levels of redemptions following the Covid-19 outbreak and lockdown have compelled us to take this decision,” says Sanjay Sapre, president, Franklin Templeton India.
The current lockdown on account of the coronavirus pandemic has led to risk aversion amongst investors and there are no takers for lower-rated and unrated paper. Yields of lower-rated paper are high in the market and there is no price discovery, forcing the fund house to take this decision.
With the scheme being wound up, the fund house will proceed to liquidate the assets of the scheme without resorting to any distress sale. However, there is no timeline to liquidate the schemes’ assets. The unit holders will be paid as and when the securities come up for maturity in the portfolio. Once the security matures and the fund house receives proceeds from the issuer, they will pay the money to unit holders in the scheme. If the market situation improves, the fund house will also try to sell the securities in the market, but will not resort to distress sale. Typically, the shorter the duration of the portfolio, the faster the scheme is likely to be wound up, and unit holders can expect payment accordingly.