[ad_1]
Franklin Templeton Mutual Fund (MF) decided on Thursday to liquidate six of its debt schemes geared toward high-yield investments, with a combined asset base of Rs 25.856 billion, citing continued redemption pressure and lack of liquidity in the markets. of debt amid the coronavirus blockade and pandemic.
According to industry sources, Franklin Templeton MF had more than Rs 3 billion in loans.
“In the current environment, it has been difficult to generate liquidity, especially for credit papers, which are low on the credit curve,” said Sanjay Sapre, president of Franklin Templeton MF.
As the cost of generating liquidity in such funds would have had a negative impact on existing investors, the fund house decided to make the decision. “Significantly reduced liquidity in the Indian bond markets for most debt securities and unprecedented levels of redemptions after the Covid-19 outbreak and closure have forced us to make this decision,” Sapre said.
ALSO READ: Investors Must Stick to Shares of Companies Focused on the Domestic Market
The schemes being liquidated are the Low Duration Fund, Dynamic Accumulation Fund, Credit Risk Fund, Short Term Income Fund, Ultra Short Bond Fund and India Income Opportunities Fund. As a result, investors will no longer be allowed to make new purchases or sales of these funds. Systematic plans, including systematic investment plans, systematic transfer plans and systematic retirement plans will also be suspended.
Market participants fear that the current situation may also affect other debt schemes. “Unlike banks, MFs don’t have the same maneuverability when it comes to liability.” Tomorrow, investors may suddenly appear and search for large redemption requests, which can affect debt schemes, given the current illiquid environment, ”said Dhirendra Kumar, CEO of Value Research.
ALSO READ: Coronavirus Impact: RBI’s TLTRO 2.0 Takes the Banks Shoulder
“The Franklin Templeton MF problem started when their credit call went wrong in Essel, the idea of Voda, the ADAG group type of exposures. Their illiquid portfolio failed to handle the bailout pressure that forced them into debt. They eventually had to take the drastic step of liquidating your funds. This is the exact opposite of many other fund houses, “said the executive director of a fund house.
“The fund house recently went to market to sell convertible bonds from a bank that traded at 6.25 percent. However, realizing the despair of the fund house, the market was offering to buy at 8 percent, “added the executive.
“Franklin Templeton MF has deep retail penetration and some of the funds were popular with retirees, given the potential high-yield generation,” he said.
Industry participants say Franklin Templeton MF funds were popular with retirees because of the higher-yield returns they could get by investing in relatively low-rated papers.
READ ALSO: Market correction encourages MFs to reduce exposure to banks and invest in pharmaceuticals
According to industry participants, exchange pressure continued in April and created weaknesses in the industry of MF 22 trillion.
Meanwhile, MF distributors fear that investors may begin to withdraw their large investments from debt schemes, following the move by Franklin Templeton.
“The liquidation of the schemes suddenly slows investor withdrawals, until the fund can liquidate its entire stake, and it doesn’t,” said a Mumbai-based independent financial adviser.
“Cash flow for investors will be affected. With the benefit of hindsight, the situation could have been better handled, especially the concentrated investments made by Franklin Templeton MF, “said Amol Joshi, founder of Plan Rupee Investment Services.
ALSO READ: Coronavirus LIVE: Global cases exceed 2.7 million; The American toll approaches 50,000
The March redemption pressure of FY20 on debt mutual funds (MF) was the highest for the closing month of any financial year. A combination of hardened yields amid the sale by foreign institutional investors and redemptive pressure from corporate treasuries seeking to conserve cash in light of the blockade led to the outflow of Rs 1.94 trillion in March.
High bailout pressure forced several debt funds to borrow funds from banks to exit investors. As of March 31, 2020, the Franklin Short-Term Income Fund had 17.7 percent of assets as net liabilities. The Franklin Low Duration Fund and the Franklin Ultra Short Bond Fund held 12.7 percent and 7.1 percent of the plan’s assets, respectively, as net liabilities.
Market participants say that the full redemption of funds can take anywhere from six to 12 months. Sapre said the fund house will try to make monthly payments to investors.
[ad_2]
