Franklin Templeton fiasco: Where should debt investors invest now? Should they rejig portfolio allocation?

By: and |
Published: April 24, 2020 6:02 PM

Some analysts see Franklin Templeton fiasco as a positive and expect a few changes in the portfolio allocation for a short-term period.

Mutual funds, debt investors, Franklin TempletonInvestors should evaluate the portfolios of the schemes to determine the comfort with the extent of risk taken by the fund

In the light of the Franklin Templeton fiasco, where the fund house decided to wind up its six credit funds, the questions on the debt investors’ minds are: Where should I invest my money now? Is this a time for change in portfolio allocation? The money that was ‘invested’ with Franklin Templeton until yesterday, has now been ‘stuck’ after the decision to wind up six open-ended schemes. Now, the investors will not be able to withdraw, make fresh purchases or redeem at their own will. All the six funds that Franklin Templeton decided to wind up are corporate debt-oriented funds.

These six funds namely Franklin Ultra Short Bond Fund, Franklin India Low Duration Fund, Franklin India Short Term Income Plan, Franklin India Dynamic Accrual Fund, Franklin Income Opportunities Fund and Franklin India Credit Risk Fund, had a total asset under management (AUM) of over Rs 25,000 crore as of April 22 (in the regular scheme). “The credit risk was high in these funds. COVID-19 issue has impacted the credit profile,” Alok Singh, Chief Investment Officer, BOI AXA Investment Managers Ltd, told Financial Express Online.

What should investors do now?

Now, fund managers advise investors to only look for the quality of the portfolio. “Retail investors should be prudent while investing in debt funds and should always look only for the quality of the portfolio. They should completely ignore past performance, big names and big brands while making investments,” Omkeshwar Singh, Head – RankMF, Samco Securities, told Financial Express Online.

Investors must focus on a few categories instead of going all out on any fund. Besides, liquid and overnight funds, money market funds, short-duration funds, corporate bond funds, PSU and Banking funds, Gilt funds, and schemes with high-quality portfolios offer security, says Omkeshwar Singh. In another word of advice for investors, Omkeshwar Singh said, “Go for AAA-rated funds in a crisis situation. During such a risky time one shouldn’t think about the returns as the main thing is capital.”

Will investors be now tempted to change their portfolio allocation?

 Some analysts see this fiasco as a positive and expect a few changes in the portfolio allocation for a short-term period. “I do not see any major changes thereafter as the fund house action is a good sign,” Ravi Singh, VP- Head of Research, Karvy Stock Broking, told Financial Express Online. “An efficient way to manage risks is to ensure that the type of debt funds you choose is aligned to your goal timeline,” Ravi Singh added. He further advised investors to evaluate the portfolios of the schemes to determine the comfort with the extent of risk taken by the fund.

“Investors would also do well to desist from chasing just returns without having regards to the risk taken by the respective schemes. AMFI on its part should educate investors on this aspect (how to assess this risk),” Deepak Jasani, Head of Research, HDFC Securities, said.

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