Franklin Templeton fund closure Highlights: 'Investors currently in state of fear and shock'

 

 

this article has been re published here on courtsy of MONEY CONTROL in public interest 



 



MoneyControl   • Apr 24, 2020 08:56 PM IST


In an unprecedented decision, Franklin Templeton Mutual Fund has shut six of its open-ended debt funds, effective April 23.

The six schemes are as follows:
- Franklin India Low Duration Fund (FILDF),
- 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 (FIIOF).

All these schemes followed the high-risk, high-return credit risk strategy. The fund house will now sell the underlying securities of all these funds over time and pay off their investors in a staggered manner.

Templeton will keep trying to liquidate its portfolios as much as it can. Of the money it receives, Sanjay Sapre, President, Franklin Templeton – India has assured that the fund house will keep paying all investors, big or small, proportionately and in installments.

He added that the fund will not charge asset management fee with effect from April 24, the winding date, for as long as it takes for them to redeem the funds completely. Meanwhile, the segregated portfolios of these schemes will continue independently.

April 24, 2020 12:08 PM IST

Find our complete coverage of the Franklin Templeton India Fund Closure Crisis here



April 24, 2020 06:59 PM IST

Deepak Jasani, Head Of Research, HDFC Securities: The decision by Franklin Templeton to voluntarily wind up six of their debt funds has shaken up the debt mutual fund industry. This coming after a series of NAV write-downs/segregation by various fund houses due to downgrades/defaults by investee companies will not do any good for the risk-on sentiments of retail & HNI investors. This episode once again highlights the weakness in the secondary debt markets in India as they tend to get illiquid by small bouts of micro and macro negative news. Despite the categorization by SEBI, a lot of debt schemes take on risks that are not reflected in their scheme riskometer or their category names. Fund managers with a view to generate higher return tend to take higher risks in the portion of other investments permitted in even safe low risk categories. 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). On a higher level, faster legal resolutions/recoveries will help in development of buying out of stressed assets and improving the depth and liquidity in secondary debt markets. One hopes that this is a one-off case and we will not see more such cases even though the economy is yet to come out of this difficult phase.



April 24, 2020 05:31 PM IST




April 24, 2020 04:00 PM IST

Franklin Templeton fund closure: How did Santosh Kamath, the master of managing credit risk funds, lose the plot?
With 26 years of research experience and 19 years of portfolio management experience, Kamath is said to be a key decision-maker on investing in sub-AAA rated bonds or any form of structured debt.


April 24, 2020 03:44 PM IST

Franklin Templeton Fund Closure | Reactions
Franklin Templeton’s fund closure is an eye-opener for the RBI that its liquidity efforts are either insufficient or are not effective in de-freezing the liquidity crisis, Umesh Mehta, Head of Research, Samco Securities, says in an interview to Moneycontrol’s Kshitij Anand. Read here



April 24, 2020 03:35 PM IST

Franklin Templeton Fund Closure | No case for redeeming other sound debt funds

On Thursday, Franklin Templeton announced that it has shut down six of its credit strategy oriented debt mutual fund schemes.


April 24, 2020 03:30 PM IST

Franklin Templeton Fund Closure | Reactions
After Franklin Templeton Mutual Fund closed six of its open-ended debt funds, many Twitter users shared their views on the unexpected move.

Here's what Twitter users are saying about Franklin Templeton fund closure



April 24, 2020 03:20 PM IST

Franklin Templeton Fund Closure | Reactions
Abhimanyu Sofat, head of research at IIFL Securities told Bloomberg: The closure of Franklin Templeton debt funds will be a jolt to the corporate debt market in India. These funds were one of the top performing for last couple of years due to higher risk being taken by them by lending to lower-rated corporates. We believe it’s time for RBI to be even more strong in its intervention in the credit market.



April 24, 2020 03:10 PM IST

Franklin Templeton Fund Closure | Reactions
Omkeshwar Singh, Head - RankMF, Samco Securities: Retail Investors should be prudent while investing in debt funds and should always look only for the quality of the portfolio and should completely ignore past performance, big names and big brands while making investments. Investors have no choice, but to wait so that the liquidity gets back to the lower end of the system as and when the lock down is over and economic activities start, only then the AMC will pay back the realisable money. (2/2)



April 24, 2020 03:03 PM IST

Franklin Templeton Fund Closure | Reactions
Omkeshwar Singh, Head - RankMF, Samco Securities: In crisis situations any portfolio with exposure to credit risk debt instruments have risk of liquidity and are will be adversely impacted. Further the debt funds are dominated by corporates and HNIs from investment side and most of the corporates due to Covid 19 lockdown have liquidity issues and are therefore aggressively redeeming debt mutual funds to meet cash requirements. Franklin Templeton was not able to funds these redemptions and therefore winded up 6 schemes under redemption pressure, now as and when the money is realized the same will be credited to the unitholders. (1/2)



April 24, 2020 02:50 PM IST

Franklin Templeton Fund Closure | Reactions
Vidya Bala, head of research and co-founder Primeinvestor.in told Bloomberg: The winding up of as many as six funds is unprecedented. Having already used up the liquidity to meet large redemptions, they had no choice but to wind up to prevent a run on the funds that would have induced them to sell good-quality paper and hold on to the bad ones.



April 24, 2020 02:39 PM IST

Franklin Templeton Fund Closure | Reactions
Deven Choksey, Managing Director - Investment and Research, KR Choksey Securities told Bloomberg: There is fear in the minds of investors that other mutual funds may not be immune to the problems faced by Franklin Templeton. The Reserve Bank of India and other regulators to roll out further measures to support funds and financial markets.



April 24, 2020 02:26 PM IST

Franklin Templeton Fund Closure | Advisors may not recommend debt funds in a hurry
There are fears of investors hitting the panic button after Franklin Templeton wound up six of its debt funds. Moneycontrol's Nikhil Walavalkar finds that there is no ruling out of a contagion, with investors of other unaffected debt mutual funds running to redeem their units. 



April 24, 2020 02:14 PM IST

Franklin Templeton Fund Closure | Reactions
Dhruv Mehta, chairman of Foundation of Independent Financial Advisors tells CNBC-TV18: I think the whole market was a non-AAA space. There has been so much fear that extended lockdown will result in some of these non-AAA companies moving from a liquidity situation to maybe an insolvency situation -- that has resulted in a run on the Franklin Templeton. 



April 24, 2020 02:00 PM IST

Franklin Templeton Fund Closure | Reactions
Ananth Narayan, professor, SPJIMR tells CNBC-TV18: Franklin Templeton closing six of its schemes was not about bad credit but heavy redemptions had made the situation challenging amid the coronavirus crisis. I do expect the RBI and maybe the government to step in right now. Fundamentally, the problem is that the liquidity in the secondary market for corporate debt stays limited. Last month in March, the redemptions from the non-liquid, non-overnight funds which is about Rs 7 lakh crore of AUM of mutual funds itself was over Rs 1 lakh crore. In addition, because of the global risk-off, you saw FPI selling bonds as well. So the system is simply not geared towards handling these kind of redemptions at one shot. This is not about insolvency or about bad credit. 



April 24, 2020 01:48 PM IST

Market LIVE Update | Indices erase early losses, Nifty above 9,250; RIL top gainer



April 24, 2020 01:45 PM IST

Franklin Templeton Fund Closure | Key story highlights



April 24, 2020 01:35 PM IST

Franklin Templeton Fund Closure | Reactions
HDFC Mutual Fund to CNBC-TV18: The Central Bank (RBI) should consider a direct financing line for mutual funds. May need RBI to mull unconventional methods for boosting confidence as there is a need to keep investor confidence intact. The entire corpus of a credit risk fund does not comprise of weak  paper. Most of us have no borrowings so there is no need to panic. 



April 24, 2020 01:26 PM IST

Franklin Templeton Fund Closure | Government, RBI seized of Franklin Templeton matter, examining liquidity issues


Franklin Templeton India, one of the largest fund houses in the country, said it will shut six debt funds - Franklin India Low Duration Fund (FILDF), 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 (FIIOF) - that carried credit risk.


April 24, 2020 01:22 PM IST

Franklin Templeton Fund Closure | Government, RBI examining liquidity issues
The government is seized of the Franklin Templeton fund closure matter and liquidity issues would be addressed as and when necessary, a senior government official said. "On the face of it, it looks like one specific fund-related matter, not really reflective of the whole spectrum. But still, the government is seized of the matter. RBI (Reserve Bank of India) is examining the liquidity issue. Adequate steps would be taken as and when necessary," the official told Moneycontrol.


April 24, 2020 01:18 PM IST

Franklin Templeton Fund Closure | Franklin Templeton fund closure: Will RBI step in to save MFs from likely redemption pressure?

Dinesh Unnikrishnan analyses that as investors look for safer assets, bank deposits — despite the lower returns they offer — may see more preference since safety will be sought-after over returns. Read more here



April 24, 2020 01:14 PM IST

Franklin Templeton Fund Closure | Reactions
Acuité Ratings & Research: The lack of backup or alternative funding lines will have serious implications for the sustainability of the NBFC sector over the next 3 months as collections from the borrowers are likely to be limited in the April-May period. Although RBI announced TLTRO 2.0 for an amount of Rs 50,000 crore where at least 50% has to be specifically deployed in debt instruments of mid and small NBFC/MFIs, the initial response has been muted, reflecting the credit aversion in the banking sector. The other part of the RBI stimulus provided for the sector i.e. the refinance window of Rs 50,000 crore through government financial institutions such as SIDBI will be critical.



April 24, 2020 01:09 PM IST

Franklin Templeton Fund Closure | Reactions
Acuité Ratings & Research: Liquidity concerns have aggravated and a quick response is the need of the hour. The funding gap is estimated to further increase to Rs. 15,000-25,000 crore. While RBI has provided a 3 month moratorium framework for borrowers of banks and NBFCs for March-May period, it is increasingly clear that all banks are not likely to grant such a moratorium for their NBFC or MFI exposures. Further, a 50% response in the first tranche of bids for RBI’s TLTRO 2.0 indicates that banks are hesitant to take fresh exposures to the sector, particularly to small and mid-sized NBFCs including MFIs, at this juncture. Thus, the refinance window of Rs. 50,000 Cr through government financial institutions such as SIDBI assumes significant relevance.



April 24, 2020 01:02 PM IST

Franklin Templeton Fund Closure | AMFI assures investors
NS Venkatesh, Chief Executive, AMFI: The mutual industry has seen many cycles and its professional fixed income fund managers have managed crises efficiently over the years. Over the last five years, the Indian MF Industry AAUMs have doubled from Rs 11.88 lakh crore as on March 31, 2015 to Rs 24.70 lakh crore of AAUM as on March 31, 2020. Most credit risk funds have pretty good credit quality and sufficient liquidity in today’s challenging times and continue to remain an attractive investment option for investors. 



April 24, 2020 12:58 PM IST

Franklin Templeton Fund Closure | AMFI assures investors
Nilesh Shah, Chairman, AMFI: Banking liquidity in excess of Rs 700,000 crore, Long Term Repo Operations ( LTRO ) conducted by the RBI, expectations of further rate cuts and Operation Twist by the RBI is likely to keep bond market liquid and normally functioning in current challenging times. The Mutual Fund industry remains fully committed to investor interests and there is no need for them to panic and redeem their investments. The industry continues to remain robust like in 2008 sub-prime crisis or 2013 taper tantrum crisis. 



April 24, 2020 12:57 PM IST

Franklin Templeton Fund Closure | AMFI assures investors
We expect fixed income funds across entire Mutual Fund Industry to continue their normal operation without any material impact: AMFI stated.



April 24, 2020 12:56 PM IST

Franklin Templeton Fund Closure | AMFI assures investors
Fixed income schemes of most mutual funds have superior credit quality as confirmed by ratings of independent credit rating agencies and continue to remain fairly liquid even in these challenging times. SEBI regulations allow mutual funds schemes to borrow up to 20 percent of their assets to meet liquidity needs for redemption or dividend pay-out. While AMFI is in the process of collecting the data, many mutual funds have informed that they do not have any outstanding borrowing. Liquidity, maturity profile and credit quality for debt funds is appropriate for day-to-day operations to continue uninterrupted, AMFI stated.



April 24, 2020 12:52 PM IST

Franklin Templeton Fund Closure | AMFI assures investors
Without naming the fund house, AMFI said, “The action taken by the particular AMC is limited to the six specific credit risk fixed income schemes managed by the said AMC due to the illiquidity of their portfolios.” The assets under management (AUM) of these six schemes constitute less than 1.4 percent of the Indian Mutual Fund Industry’s aggregate AUM as on March 31, 2020, AMFI added.



April 24, 2020 12:50 PM IST

Franklin Templeton Fund Closure | AMFI assures investors
Association of Mutual Funds in India (AMFI) assured investors that majority of Fixed Income Mutual Funds AUM is invested in superior credit quality securities and schemes have appropriate liquidity to ensure normal operations. It strongly recommended that investors 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.


April 24, 2020 12:49 PM IST

Franklin Templeton Fund Closure | MC Pro: End of RBI moratorium to bring tough days
Moneycontrol's Shishir Asthana explans that there will be tough days for debt mutual fund investors when RBI’s moratorium period ends. And some Indian companies have also approached courts to stall rating agencies from downgrading their debts. Read more here



April 24, 2020 12:47 PM IST

Franklin Templeton Fund Closure | Will RBI step in?
In the recent days, the RBI has been already doing that. Of late, it has actively engaged with markets to ensure liquidity in the market to nullify the impact of COVID-19 crisis. But, this has largely benefited the AAA-rated companies. The RBI did two rounds of Targeted Long Term Repo Operations (TLTRO) on March 27 (worth Rs 1 lakh crore) and April 17 (worth Rs 50,000 crore). “It is bit premature to say what the impact of this action will be on bond market. This is, till now, a fund specific problem,” said Kumaresh Ramakrishnan, CIO Fixed Income, PGIM India Mutual Fund. Read more here



April 24, 2020 12:45 PM IST

Franklin Templeton Fund Closure | Will RBI step in?
There is precedence. In 2008, in the aftermath of the global financial crisis, the RBI had stepped in to save the mutual funds industry. The central bank then opened a special window to provide banks with funds to support mutual funds. The RBI then cut the amount of funds banks must keep in reserve, releasing more than $12 billion into the banking system,  injected $13 billion via its daily overnight money market operations and introduced a temporary funding window for mutual funds. This time around, if the crisis spills over to the broader money markets, the RBI could come with a similar window to help banks with liquidity for mutual funds, bankers and analysts said.



April 24, 2020 12:43 PM IST

Franklin Templeton Fund Closure | Reactions
Naresh Malhotra, a senior banker: There is a spill-over effect likely to other funds, equity markets and I won’t be surprised if banks become the last resort for investors 



April 24, 2020 12:42 PM IST

Franklin Templeton Fund Closure | Reactions
Siddharth Purohit, analyst at SMC Securities: The event will shake the trust of the investor and there is redemption likely. This money could go to banks till the time banks there is clarity.



April 24, 2020 12:39 PM IST

Franklin Templeton Fund Closure | AMFI reassures debt fund investors after Franklin Templeton shuts six schemes
AMFI strongly recommended that investors 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


April 24, 2020 12:36 PM IST

Franklin Templeton Fund Closure | Impact on financial system
“Banks could see a flood of deposits in near term,” said Pratip Chaudhuri, former chairman of State Bank of India. As investors look for safer assets, bank deposits — despite the lower returns they offer — may see more preference since safety will be sought-after over returns. Some mutual funds will face high redemption pressure in the short-term, experts said.



April 24, 2020 12:30 PM IST

Franklin Templeton Fund Closure | Possible impact on financial system
What will be the immediate impact of Franklin Templeton Mutual Fund’s decision to shut six of its open-ended debt funds in the financial system? To begin with, what Templeton has announced reflects a fund specific-issue and not an industry-wide problem, yet. These were papers suffering from lack of liquidity. But Templeton’s action could impact the trust of investors in other liquid funds even in those ones that are relatively in a better liquidity position, industry observers said. If the crisis spills over, the lack of trust could result in an exodus of funds to safer assets including bank fixed deposits and gold. 



April 24, 2020 12:25 PM IST

Franklin Templeton Fund Closure | MC Pro: Closures a symptom of illness

Debt fund closures are symptoms of an illness that can be cured only by a strong stimulus. Investors in debt funds will be frightened by what's happened at Franklin Templeton. The RBI and the government need to step in with strong financial measures to restore confidence. 


April 24, 2020 12:20 PM IST

Franklin Templeton Fund Closure | Reactions
Ashwani Bhatia, MD and CEO of SBI Mutual Fund: The panic will likely go away as even in the best of times the markets are often illiquid. However, there is a need to ensure that the liquidity crisis doesn't turn into one a solvency crisis. A credit line from the RBI will do a lot of good for the industry. Nothing has changed overnight and we think RBI and SEBI are already working together to ensure liquidity. The mere announcement of a credit line in 2008 had boosted confidence tremendously. Franklin Templeton's move is in the best interest of the investors. Read here



April 24, 2020 12:17 PM IST

Franklin Templeton Fund Closure | SEBI eased valuation policies for debt MFs
This shall be in force till the period of moratorium by the RBI. However, as per the Principles of Fair Valuation specified in under mutual fund norms, asset management companies would continue to be responsible for true and fairness of valuation of securities. Last month, SEBI had asked credit rating agencies not to consider as default any delay in payment of interest or principal loan amount arisen solely due to the nationwide lockdown conditions: PTI 



April 24, 2020 12:16 PM IST

Franklin Templeton Fund Closure | SEBI eased valuation policies for debt MFs
The move follows a three-month moratorium on payment permitted by the Reserve Bank of India to mitigate the burden of debt servicing due to disruptions caused by the coronavirus pandemic and to ensure continuity of viable businesses. SEBI in a circular said a differentiation in treatment of default, on a case to case basis, needs to be made as to whether such default occurred solely due to the lockdown or loan moratorium. Based on assessment, if the valuation agencies appointed by AMFI are of the view that the delay in payment of interest/principal or extension of maturity of a security by the issuer has arisen solely due to COVID-19 pandemic lockdown ... creating temporary operational challenges in servicing debt, then valuation agencies may not consider the same as a default for the purpose of valuation of money market or debt securities held by mutual funds," it added. However, if there is any difference in the valuation of securities provided by two valuation agencies, the conservative valuation shall be accepted: PTI



April 24, 2020 12:15 PM IST

Franklin Templeton Fund Closure | SEBI eased valuation policies for debt MFs
Securities and Exchange Board of India (SEBI) on April 23 asked valuation agencies not to consider any lockdown-related delay in payment of interest or principal or extension of maturity of a security as default for the purpose of valuation of money market and securities held by mutual funds. This was one of the major issues faced by mutual fund houses during the ongoing nationwide lockdown. The valuation agencies appointed by the Association of Mutual Funds in India (AMFI) provides valuation of money market and debt securities and recognise default of securities: PTI


April 24, 2020 12:12 PM IST

Franklin Templeton Fund Closure | SEBI eased valuation policies for debt MFs
Market participants are concerned that the current situation may also impact other debt schemes. Markets regulator Securities and Exchange Board of India (SEBI) on April 23 eased the valuation policies for debt mutual funds and asked them not to term a paper as default if the delay in payment of interest or extension in maturity is mainly due to coronavirus pandemic related lockdown: PTI



April 24, 2020 12:04 PM IST

Franklin Templeton shuts down six credit risk strategy debt funds; All investors need to know
The decision is restricted to six funds which, the company said, have material direct exposure to the higher-yielding, lower-rated credit securities in India that have been most impacted by the ongoing liquidity crisis in the market.


April 24, 2020 12:02 PM IST

Franklin Templeton Fund Closure | Explained
Tweet Thread on what just happened to Franklin Templeton Funds - Credit Risk Funds by Manoj Nagpal, Moneycontrol business head - B2C revenues



April 24, 2020 11:59 AM IST

Franklin Templeton Fund Closure | Reactions 
Amit Singh, Head, Investica (online MF platform powered by Choice Broking): This is clearly a casualty of the COVID-19 pandemic. Debt markets have been facing a lot of liquidity issues over last month even in the high rates papers. In low credit papers, the liquidity pressure was higher. This does not impact the entire universe of debt mutual funds. Funds with high-quality papers have seen steady growth during this period. RBI is also doing its bit to maintain enough liquidity in the debt markets. Our recommendation to investors is to stick to debt funds which only invest in high rated debt papers. Please consult a financial advisor to get your needs assessed and invest accordingly. 



April 24, 2020 11:55 AM IST

Franklin Templeton Fund Closure | Questions Answered: Will Franklin Templeton ever open these schemes?
No, the schemes are wound down.  That means they will never open again. It will work like a segregated portfolio. Look at it this way: the day the fund houses get any interest or maturity from any of the holdings, it will distribute to investors.
As and when the underlying portfolio instruments mature or the scheme receives the money back (in case interest or defaults etc), Franklin Templeton will pay it back to you. Quoting what Templeton said in a note on April 23: “The trustees, with the assistance of the investment manager, will proceed with orderly realisation and liquidation of the underlying assets …”  The catch is that Templeton will distribute proceeds to unit holders only after it discharges liabilities of the funds. But note that these payments — when they happen — will be staggered. As Templeton said, impacted investors should immediately contact their advisors to discuss financial and tax implications.



April 24, 2020 11:53 AM IST

Franklin Templeton Fund Closure | Questions Answered: What happens to my investments? Will I get my money back?
Unfortunately, the chances of you getting the money back are very, very bleak. Remember, the wind-down is similar to a lockdown. These schemes will not allow any further transactions. In other words, there will be no purchases just as there will be no redemptions. The entire scheme has now been segregated into a separate portfolio.

These six schemes put together are estimated to have an AUM of Rs 28,000 crote. This entire AUM is now stuck. You cannot redeem the funds. This includes purchases or redemptions through Systematic Investment Plans /Systematic Transfer Plans/Systematic Withdrawal Plans. Simply put, you cannot withdraw the money you have invested.



April 24, 2020 11:52 AM IST

Franklin Templeton Fund Closure | Questions Answered: Why did Franklin Templeton India decide to shutter these funds?

Indeed. Unprecedented is how Franklin Templeton termed the decision. The fund house has squarely blamed the coronavirus pandemic for the decision. “In light of the severe market dislocation and illiquidity caused by the COVID-19 pandemic, this decision has been taken in order to protect value for investors via a managed sale of the portfolio,” Franklin Templeton declared in a statement on April 23.

India’s financial sector is under intense strain, grappling with a crushing liquidity crisis. Due to the uncertainty, investors began to panic and took to redemption, especially in credit risk funds such as the ones run by Franklin Templeton. To meet redemptions, a fund house typically dips into cash reserves or sells underlying scrips. Even that wasn’t enough, according to Templeton, which forced it to take the decision to wind up the six funds.



April 24, 2020 11:46 AM IST

Franklin Templeton Fund Closure | Reactions
ICICI Prudential Mutual Fund: Diversification on credit side is very important in a credit risk fund. Adjusted for tax and risk, debt funds have a very important role in one's portfolio. 




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