The mayhem in the debt market claimed its first victim with Franklin Templeton Mutual Fund deciding to close six debt schemes citing lack of liquidity in the debt market and unprecedented redemptions in these yield-oriented schemes.
However, the fund house 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 six yield-oriented schemes in which investments have been stopped from Thursday include Franklin India Low Duration Fund, Dynamic Accrual Fund, Credit Risk Fund, Short Term Income Plan, Ultra Short Bond Fund and Income Opportunities Fund.
The decision to close the schemes has been taken to protect value for investors via a managed sale of the portfolio in light of the severe market dislocation and illiquidity caused by the Covid pandemic.
The action is limited to the six funds, which have 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.
All other funds managed by Franklin Templeton Mutual Fund in India – equity, debt and hybrid – are unaffected by this decision, said the fund house.
Sanjay Sapre, President, Franklin Templeton India, said the tough decision was necessary to protect value for investors and the only viable means to secure an orderly realisation of portfolio assets. Significantly reduced liquidity in the Indian bond markets for most debt securities and unprecedented levels of redemptions following the Covid outbreak and lockdown has compelled the fund house to take this decision, he said.
Santosh Kamath, CIO, Franklin Templeton Fixed Income India, said the fund house has been managing many of these funds for over a decade, and some, for over 15 years. While these funds are getting wound up, accruals into these funds should continue in the same way as now, as the underlying securities held by these funds remain sound.
Jenny Johnson, President and CEO of Franklin Templeton, said the fund house has a long history of over 25 years in India, with 33 per cent of the global workforce based in the country.
"We believe that taking this extraordinarily difficult decision during this unprecedented time was necessary and the right thing to do. Quick and decisive action was imperative to protect the existing investors in these funds," he said.