About Franklin Templeton Mutual fund schemes shut from
24.04.2020:-
The
six schemes are:-
(a)
Franklin India Low Duration Fund (FILDF),
(b)
Franklin India Dynamic Accrual Fund,
(c)
Franklin India Credit Risk Fund,
(d)
Franklin India Short Term Income Plan,
(e)
Franklin India Ultra Short Bond Fund,
(f)
Franklin India Income Opportunities Fund (FIIOF).
All
these schemes followed the high-risk, and high-return credit risk strategy.
1. When will the investors get their money?
It is expected
that once the macroeconomic situation improves, the cash-flow pains will be
relieved, and they be able to make good on their debts, allowing investors to
withdraw their investments, according to Shetty.
FT will do an orderly sale of
their investments and return the money to
investors. They may publish a Net Asset Value (NAV) for the schemes on a daily
basis and eventually communicate more details on an exit strategy
"This step
is in a way similar to temporarily blocking withdrawals from a bank. However,
time duration can't be predicted," explains Singhal. 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.
2. Should investors also worry about other
funds from Franklin Templeton?
This appears to
be a situation unique to these specific debt funds from Franklin Templeton.
Experts feel that credit risk funds are going to face redemptions by people
worried about the safety of their money.
Credit risk funds
take additional risk to generate additional return and the current economic environment
has led to defaults.
3. How Will I Get the
Money Back?
There are two ways
of doing this:
(a)
They will also continue to explore opportunities to sell assets through the
secondary market once the current environment stabilises.
(b) Regular payments
when underlying assets reach maturity or receive coupon payments or are
pre-paid.
In the first
instance, it is anybody’s guess when the market will stabilise and when the
secondary market transactions will restart. But, it’s the second method that
can provide some sense of timelines regarding recovery.
4. When Will I Get
My Money Back?
A good measure of
when investors can receive their money back is by analysing the liquidity
profile of the underlying assets in the 6 affected schemes. A liquidity profile is a measure of the maturity timelines of
these assets. Assuming that all maturities and payments are honoured, here is a
realistic timeline of how each scheme will repay the money.
Imp disclaimer: Do remember, this calculation does not account for
any secondary market transactions. If FT decides to sell some/any security in
the secondary market, it is likely that it may fetch a different value and will
subsequently alter the timelines too.
Imp disclaimer: If any underlying security is downgraded prior to
its maturity, its valuation may be altered affecting the prospect of the full
amount being returned.
Imp disclaimer: In all likelihood, FT will not prolong the
recovery till the full maturity duration. Experts say most securities are
likely to be disposed off in the secondary market within 1-2 years.
Bottom line:-
The experts also
advised investors to be prudent while investing in debt funds. We believe
stress even in a small segment of the credit market can turn highly contagious
in bad times due to lack of liquidity and extreme risk aversion.
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