How much money will Franklin Templeton MF investors receive?

Following the sudden closure of six debt mutual fund schemes by Franklin Templeton Mutual Fund on April 23, 2020, all redemptions from the scheme were halted. Investors were left wondering when their money invested in these schemes would be returned.

On February 2, the Supreme Court directed Franklin Templeton MF to distribute ₹9,122 crore to the unitholders of the wound up schemes within 20 days. With this, the affected investors are for the first time, set to receive a part of their money blocked in these schemes since April 2020. SBI MF will handle the disbursement.

In the e-voting conducted in December, a majority of the unitholders, voted in favour of winding up all the six schemes. Thereafter, questions were raised about the way the e-voting was conducted. While the Supreme Court is yet to decide on the validity of the e-voting process, the apex court has ordered that cash available with the schemes be distributed to investors.

Here, we answer a few questions that investors in Franklin Templeton’s shut debt MF schemes could have.

This is based on the cash inflows into these six debt schemes from their closure until January 15, 2021. The schemes have received inflows of ₹13,789 crore by way of maturities, part payments, pre-payments and coupons on the debt securities in the portfolio, since their closure on April 24, 2020. A part of this money was used for payment of borrowings and other expenses relating to these schemes. This brought the cash available for distribution to investors down to ₹9,190 crore (excluding fund running expenses).

No. Investors in five schemes — Franklin India Ultra Short Bond Fund, Low Duration Fund, Short Term Income Plan, Credit Risk Fund and Dynamic Accrual Fund — will receive a share proportionate to their holdings in each scheme.

However, investors in Franklin India Income Opportunities Fund will not receive any part of this amount. This fund too has received cash inflows from maturities, part payments, pre-payments and coupons on the debt securities in its portfolio, just like the other five schemes. But unlike the other schemes, it has borrowings that need to be paid off before investors can be paid. As a result, it has no cash available for distribution, yet. As of January 29, 2021, this scheme had an outstanding borrowing of ₹79 crore which comes to 5 per cent of the scheme’s assets under management (AUM).

This can be understood from the accompanying table. The distributable cash is what was available for the investors of each scheme as on January 15, 2021, after taking care of borrowings and other expenses. Going by the ratio of cash available for distribution to assets under management (AUM), investors can expect to receive between 9 and 63 per cent of their current investment value depending on the scheme. For instance, if you had invested in the Ultra Short Bond Fund, you are likely to get 50 per cent of your current investment value within the next 20 days or so.

Yes, but this could take a few years. As Franklin Templeton MF receives further cash inflows by way of interest, principal repayments on maturity and / or pre-payments on the securities held, more money may be paid out to investors. The six schemes have received further cash inflows of ₹602 crore since January 15, 2021.

According to the maturity profile of the schemes disclosed by Franklin Templeton, the Ultra Short Bond Fund and the Low Duration Fund should be able to encash all their assets by April 2025. Three other schemes — Short Term Income Plan, Dynamic Accrual Fund and Credit Risk Fund — are expected to encash up to 95 per cent, 92 per cent and 84 per cent, respectively of their assets by April 2025 and the rest after that. In case of the Income Opportunities Fund, only up to 52 per cent of the scheme assets may be encashed until April 2025. With another 48 per cent likely to be monetised only after that, it could be a long wait for investors before they get receive their entire investment.

The maturity profiles of all these schemes assume that all securities will be held until maturity and that all interest payments and principal repayments will be made in full. Also, do note that there may be a time lag between the scheme assets being encashed and investors receiving their money.

It is not known when the final decision will be made by the SC. According to Paritosh R Gupta of Gupta Law Associates, a lawyer for one of the scheme unitholders, there are many interested parties involved in the case and so the final decision can take time. It is difficult to say whether the schemes will be opened if the SC decides that the e-voting is invalid. The SC has taken a practical approach by ordering a distribution of the surplus cash in the schemes to the investors, in the meanwhile, he says.

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