Reality of the 6 Mutual Fund Schemes of Franklin Templeton

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The market volatility in response to the COVID-19 pandemic and nationwide lockdown has brought about a change in the liquidity position of several mutual funds. Franklin Templeton Mutual Fund and its investors faced the blow of this impact. 

This impact was evident from their recent announcement of winding up 6 of their mutual fund debt schemes. As a result of this major move, many incorrect and fake news started floating in the market creating panic among investors. 

Appended below is a factual response to some of the commonly raised questions of investors, with an aim to do away with the myths surrounding the facts.

What exactly happened with the Franklin Templeton Funds?

On 24th April 2020, Franklin Templeton wound down 6 of its debt mutual fund schemes. These funds were 

  • Franklin India Dynamic Accrual Fund
  • Franklin Ultra Short Bond Fund
  • Franklin Short Term Income Plan
  • Franklin India Low Duration Fund
  • Franklin India Credit Risk Fund 
  • Franklin India Income Opportunity Fund

What does it mean?

  • The winding-up of the 6 mutual fund schemes means the investors cannot do any transactions neither withdraw nor purchase after the 1 PM of 23rd April’20. But the scheme will be operational w.r.t. get the money back from the lenders so that they can pay to their investors.

  • The securities that have a shorter duration or maturity period will be able to return the investors’ money faster than the longer ones.

  • The fund house is looking at every possible opportunity, maturities and coupon payments, to return the investors’ money.

  • Investors, however, need to wait for the fund house to pay back their money before the maturity of their securities or by selling their assets. 
  • The total AUM of Franklin Templeton Mutual Fund is 1.04 trillion as of March 2020. And the AUM of the six funds put together as on date is Rs 25,856 crore.  These schemes have 64.7% of their holdings in paper rated below AA, as per the Mint.

    For Example, Franklin India Low Duration Fund has 64.7% of its holding in below AA-rated paper, Dynamic Accrual Fund 44.6%, Credit Risk Fund 50.2%, Short Term Income Plan 58.9%, Ultra Short Term Bond Plan 23.9% and Income Opportunities Fund 41.3%. T Cr and constitutes the 1.4% of total Mutual Fund’s AUM Data.
    (Source: Mint)

 Is it going to impact the entire mutual fund schemes of Franklin Templeton?

  • The winding-up of the six debt funds is a one-off decision taken by the fund house in the interest of the investors. As the liquidity crunch remained in the lower-rated bonds.
  • The other fixed-income fund schemes are still open for redemption requests or fresh purchases. 
  • These funds invest in government securities, cash equivalents, or AAA-rated bonds and are equipped to raise liquidity to meet redemption requests. 
  • A sizeable amount of funds has already been raised for any upcoming redemption requests. 
  • The equity funds continue to perform well under the management of a team of seasoned professionals following the philosophy for fund management and investment mandate.

What will happen to other Equity Mutual Funds Schemes other than the Franklin Templeton  Mutual Fund Schemes?

  • The current situation is tricky with investors getting nervous and rushing to redeem their investments. 
  • It must be understood that equity funds are different from debt funds and perform differently too. 
  • However, with the unparalleled market situation, advisors all over are recommending investors to stay watchful and cautious and not rush for redemptions.
  • Any kind of a trigger at this time can possibly impact the economy too.

What will happen to other Debt Mutual Funds Schemes other than the Franklin Templeton?  

  • The COVID 19  pandemic crisis coupled with the winding up of Franklin Templeton Debt schemes is most likely to impact the other Debt Funds Too. Investors might approach their fund houses for redemption requests and lay extra pressure on the market.
  • The RBI has taken some concrete steps to alleviate the impact on the economy and capital market and keep the investors’ money safe.
  • To maintain the financial stability of the market, RBI has announced a Rs 50,000 crore liquidity fund for Mutual funds. 
  • Starting from 27 April 2020, on May 11. 2020 the Special Liquidity Fund for Mutual Funds (SLF-MF) will be accessible only to Banks to help with the Mutual fund’s liquidity requirements to meet any kind of unprecedented redemptions.

 How should an investor react in such a scenario?

  • Even though the situation may not seem good, the safest bet at this time is to stay calm and avoid panic. 
  • Since both Debt and equity funds react in a different manner to the market scenario, the best option is to remain invested( especially if the investment is through SIP) and let the investment continue without rushing to stop or redeeming the SIP.
  • Especially for equity fund investors, this time is to stay invested and be watchful of the market situation at the same time. Remember, no knowledge is better than half-knowledge. Falling for any quick-bait news can cause more harm than good Kindly consult your financial advisor before making any major and harsh step. If you have any doubts with respect to the Franklin Templeton Funds, kindly write it down to us on the comment section.

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