Franklin Templeton India President Sanjay Sapre speaks on Winding Up of 6 MF Schemes

The recent COVID-19 pandemic has thrown the world out of gear! Not only essential services, even financial markets are bearing the brunt of this event. Economies across the globe have experienced financial turmoil, which has led to a massive reduction in liquidity levels. One of the undesired outcomes of the COVID-19 pandemic crisis was Franklin Templeton Mutual Fund winding up six of its debt schemes.

These schemes are namely: Franklin India Low Duration Fund (no. of segregated portfolios: 2), Franklin India Ultra Short Bond Fund (1), Franklin India Short Term Income Plan (3), Franklin India Credit Risk Fund (3), Franklin India Dynamic Accrual Fund (3), and Franklin India Income Opportunities Fund (2).

Addressing investor concerns

To assuage investor concerns and answer relevant questions, Sanjay Sapre, President of Franklin Templeton India, took to a podcast “Frankly Speaking”.

Addressing the investors directly, Sapre said, “If we had felt there was any other way of achieving the objective of preserving value for you, we would certainly have chosen it. But in the need to protect the value, we could no longer offer daily liquidity, and that I know is the core cause of your anxiety.”

Explaining the events that led to this decision, he clarified, “The lockdown was unprecedented, at least in my lifetime. It is necessary to contain the spread of this disease that has had far-reaching consequences for all of us personally just as it has caused severe dislocation in the market, particularly for the type of securities these schemes held in their portfolio.”

Reassuring investors, Sapre added, “Winding up does not mean we have written off any assets or given up any dues from our investee companies… the schemes have not lost their assets. We are continuing to receive interest payments and scheduled maturities and we’re talking to every company to see if they can pay us back in advance.”

The road ahead

Answering investors’ questions concerning the waiting period before they receive their monies, he explained, “The schemes have borrowed money to fund redemptions. Regulations require that we pay these borrowings first. If we simply look at the maturity schedule we have posted on our website, this shows that you can start to receive money as early as June in some of our schemes, but for others the wait is longer.”

“We cannot predict precisely today is how quickly the market will normalize, and therefore how quickly we can liquidate the rest of the holdings. We have already started work on this, and we will bring you more frequent updates,” Sapre added.

Talking about further measures, he clarified, “Regulations require that we give you an opportunity to vote on the process to be followed for winding up of the schemes. We will shortly write to each one of you and to our partners with more details about this….”

“Our goal is not to do a fire sale at any cost, not to make you wait till maturity, but to find the right balance between the two,” he stated. “…while we will be paying the borrowing first, it does not take away any value from the schemes unit holders,” he clarified.

The Franklin Templeton Legacy

Assuring investors of Franklin Templeton’s Indian legacy, Sapre said, “...we are committed to being in India. We are working to return your money in these schemes at the earliest possible time that there is no impact on the other schemes that we manage whether fixed income, hybrid, or equity.

“…we are committed to giving you as much transparency as we can into the portfolios and the process to help you understand that we are working as hard as possible to return your money to you,” Sapre stated.

Franklin Templeton Mutual Fund has a long-standing reputation in the Indian market built on service the company has provided to its investors over the years. The fund house has been operational in India for over a quarter of the century. A third of their global workforce operates out of India, which is a testament to their commitment.

While the decision to wind up the six schemes in question could appear to be a harsh one, it was the only choice left in the current scenario, as explained above. With all other schemes from the fund house performing  normally, the legacy of the fund house is something that still shines bright in the face of adversity.