With the winding up of the six mutual fund schemes, the weakening cracks in the secondary debt markets are more visible.
The closing of six debt mutual fund schemes by Franklin Templeton does not necessarily mean that the amount has been written off and that the investors are left stranded; the investors will get part of their money back over time. Franklin Templeton has made it clear that it will continue to monitor the six schemes with close to Rs 25,000 crore assets under management (in regular schemes) and will periodically sell the underlying debt instruments at the best possible price to return investments made by unitholders. Along with that, market experts are of the view that the California-based parent company could lend support under such tough circumstances.
With the winding up of the six mutual fund schemes, the weakening cracks in the secondary debt markets are more visible. “This is a very unfortunate situation for a large AMC such as Franklin Templeton. I hope Templeton USA will come and support, so that early liquidity can be provided,” Amit Dalal, Executive Director, Tata Investment Corporation Ltd, told Financial Express Online. The US-based parent company, which is run under the same name, reported its total AUM to be $580 billion at the end of March 2020.
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Although the closed schemes invested in lower grade papers, market experts and Franklin Templeton itself believe that the fund house will be able to sell those as the situation eases in the market. However, it should be noted that the amount that Franklin Templeton is able to secure after selling these papers is what will determine the extent of money the investors receive back.
Market analysts believe that the Franklin Templeton issue is similar to just a bank going under the moratorium, meaning that the money is not entirely lost, and the investors will get it back once the AMC is in a position to return it. “In the case of Franklin Templeton, there are marketable securities and there will be buyers for that, not immediately… as in what proportion or tranches investors will get their money, is something we really don’t know,” Alok Singh, Chief Investment Officer, BOI AXA Investment Managers Ltd, told Financial Express Online.
Defending their strategies, Franklin Templeton said on Friday that the current situation is unfathomable. “The closing of these six funds does not mean any write-off in value. We will actively monitor these funds to make the best possible exit,” said Sanjay Sapre, President Franklin Templeton India. He added that the coronavirus is an unprecedented occurrence that has flooded the fund house with significantly high redemption when liquidity is low. He, however, assured investors that the decision to wind up the schemes was to preserve investor money. “We have regular cash flows in these funds but we will exit at the best possible time and will distribute it periodically to unitholders,” he said.