A day after its shocking decision to close six debt schemes, Franklin Templeton Mutual Fund on Friday said it had engaged with Sebi on the decision and the capital markets regulator saw "reason" in its move aimed at protecting value for investors.
The fund manager said that investors will have to wait for a few months to get their money while pointing out that instances like targeted long-term repo operations' inability to find takers despite the low-interest rate illustrate heightened risk aversion in the system and a "dislocation" in the markets.
The asset manager, which is operating in India for 25 years, shut down 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 on Thursday. The six debt schemes had assets under management of over Rs 25,000 crore.
This is the first instance when a fund house is shutting its schemes because of coronavirus-related pandemic. The asset manager blamed redemption pressures and lack of liquidity in the bond markets for the "voluntary" action. The decision has led to concerns about the fate of investments and industry body AMFI rushed in on Friday to assuage the same.
"We did have extended engagement with the regulator on this and the regulator is also very cooperative. Sebi has been wonderful; they also saw reason...that the best option would be to wind-up the fund. its a very thoughtful decision not taken in haste," Franklin Templeton Group's managing director Vivek Kudva said on an investor call.
Earlier, the entire top management affirmed of the ninth biggest asset manager in India affirmed its commitment to India, underlining that all the other schemes continue normally.
Its managing director for India operations Sanjay Sapre said due to the COVID-19 pandemic, there has been an unprecedented redemption pressure from investors and the only options left with the MF was to sell its holdings at a significantly lower cost which would impact investors choosing to remain invested, or borrow more to fund the investments.
When both looked difficult, and with a view of protecting the investment value, it decided to pause, by shutting the schemes, he said, adding that no new transactions can be initiated by the investors now.
However, the funds will be functional from a management perspective, wherein maturity amounts and coupons on investments will get accrued and the sale of papers will take price at the best price, he explained.
"We realised that it is going to harm investors because we do not see much clarity on both the market and the economy moving ahead. We took a call that it is pertinent to put a pause to these (six) funds, wind them over a period of time in an orderly and non-disruptive manner," its chief investment officer for fixed income Santosh Kamath said.
Kudva said investors will keep getting paid periodically as the money gets generated, while Sapre pointed to the possibility of an "equitable" distribution of the proceeds if a scheme is shut.
"We hope that we will be able to preserve value and hopefully over the next few months we will be able to return maximum value to the investors," Kudva said.
Kamath said the markets are dislocated and not functioning optimally because of lack of clarity on lockdowns, while Kudva said lakhs of crore in excess liquidity being parked with RBI daily points out to severe stress in risk appetite.
"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 said in a late evening statement on Thursday.
Industry body Amfi has 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.
The industry body, in a statement, has 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.
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