Former finance minister P Chidambaram said on Saturday that the Centre must “resolve” the situation quickly after Franklin Templeton Mutual Fund has decided to wind up six of its debt schemes in India. He called it a matter of “grave concern” to the investors, mutual fund industry and the financial markets.
Senior Congress leader Chidambaram said in a statement, “Fortunately, the markets will be closed today and tomorrow. I expect that the government will act promptly and resolve the situation quickly.”
“I recall that a similar situation arose in the first week of October 2008 (during the global financial crisis) when mutual funds faced liquidity stress. Government immediately consulted RBI, SEBI, IBA, AMFI and others. An urgent meeting of the FSDC was convened and a solution was found by the end of the day,” he added.
“The next morning, officers of RBI and SEBI met and the RBI announced a 14-day special repo facility. The situation was resolved”.
His remarks came two days after hit hardly by the Coronavirus pandemic, Franklin Templeton Mutual Fund had closed down six of its debt schemes in India effective April 23, citing lack of liquidity in the debt market and unprecedented redemptions in these yield-oriented schemes.
“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 lock-down of the Indian economy which was necessary to address the same,” the company had said on April 24.
The funds which have been shut are Franklin India Low Duration Fund, Ultra Short Bond Fund, Short Term Income Plan, Credit Risk Fund, Dynamic Accrual Fund and Income Opportunities Fund, the company said in a statement.
The fund house will now sell the underlying securities of all these funds over time and pay off their investors in a staggered manner. However, it has not announced details on how it will proceed with winding up of the scheme, except for promising to announce the net asset value of the schemes daily.
The statement noted that the Trustees of Franklin Templeton Mutual Fund in India, after careful analysis are of “the considered opinion that an event has occurred, which requires these schemes to be wound up and that this is the only viable option to preserve value for unit holders and to enable an orderly and equitable exit for all investors in these unprecedented circumstances”.