Giving a sigh of relief to its investors, Franklin Templeton India President Sanjay Sapre on Monday said that his company is committed to return investor money at the earliest, as winding up of the schemes does not mean that investor money is lost.
Franklin Templeton Mutual Fund on Thursday closed six of its debt funds with a combined $3.4 billion in assets, citing redemption pressures and lack of liquidity in the bond markets.
“We are committed to doing all we can to return monies in the schemes that are wound up at the earliest to investors, and to regain your trust in our brand,” Sapre said in a note to investors.
The six closed schemes 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.
The asset manager blamed redemption pressures and lack of liquidity in the bond markets for the “voluntary” action.
“Franklin Templeton has been an early and patient investor in India. We have worked to build a long-term business in India over our 25+ year history here. This is also reinforced by the fact that over 33 per cent of our global workforce is based in India,” Sapre said.
As affirmed by our global CEO, Jenny Johnson, Franklin Templeton’s commitment to India remains steadfast, he added.
Sapre said that the decision to wind up suite of six yield-oriented schemes was an extremely difficult one and taken only to protect investor interest. We also recognise this has impacted liquidity for our investors but was necessary in order to preserve value for our unitholders, he added.
He, further, explained to investors that these schemes followed a consistent investment strategy of investing in investment-grade papers across the credit rating spectrum, that is to say, from AAA through to A-rated papers. This strategy served the schemes and its investors well until recent times.
The schemes were able to generate significant cash flows even during the last six months which were more turbulent times for the credit markets, he added.
Meanwhile, Franklin Templeton MF has also marked down its Fund-of-Fund (FoF) exposure by 50 per cent to the debt schemes, which were shut down. The FoFs had invested in some of the funds which were shut down.
FoF is a mutual fund scheme that invests in other schemes of mutual funds.
“There has been a dramatic and sustained fall in liquidity in certain segments of the corporate bonds market on account of the COVID-19 crisis and the resultant lockdown of the Indian economy which was necessary to address the same. At the same time, mutual funds, especially in the fixed income segment, are facing continuous and heightened redemptions,” Franklin Templeton MF had said in a statement on Thursday.
The decision has led to concerns about the fate of investments and industry body Association of Mutual Funds in India (AMFI) rushed in on Friday to assuage the same.
On Friday, the Association of Mutual Funds in India assured investors that majority of the fixed-income mutual fund assets are invested in “superior credit quality securities and such schemes have appropriate liquidity to ensure normal operations.”
It strongly recommended that investors should continue to focus on their investment goals, consult their financial advisor and not get side-tracked by an isolated event in a few schemes of one fund company.