Asset management company Franklin Templeton has announced winding down six of its Debt Funds (which had credit risk) effective today i.e. 24th April 2020.
This is an unprecedented move, which indicates a possible stress in the debt markets due to the persistent liquidity concerns amid falling interest rate scenarios.
The fund house has decided to wind down Franklin Low Duration, Franklin Dynamic Accrual, Franklin Credit Risk Fund, Franklin Short Term Income, Franklin Ultra Short Bond, and Franklin Income Opps Fund with immediate effect.
Investors in these schemes may be worried with regards to their investments, wondering as to will they get their money back?
This wind-down, which is similar to a ongoing lock-down will not allow any further transactions, no purchases, no redemptions and the entire scheme will become a segregated portfolio.
These six schemes put together as of date have an assets under management or AUM of Rs 28,000 crore. This entire AUM is now stuck as it is.
These six schemes have a total exposure of Rs 30,800 crore – this includes Rs 3,000 crore of borrowed money.
Of the total exposure, 2/3rd is to the AA rated debt while the balance is A rated debt. NBFCs and Power segments account for nearly 50% of exposure.
These funds have large exposure to – Edelweiss Commodities, JM Financials ARC, Piramal Group, Renew Power, UP Power Corporation, Shriram Transport Finance, Adani Rail Infra, etc.
Note that the data is for March 2020 end, and to that extent there could be some differences.
As far as investors of these schemes are concerned, they cannot redeem their investment. Simply put, withdraw any monies.
The schemes are wound down. They will never open again and will work like a segregated portfolio i.e. the day they get any interest, maturity from any of the holdings it will distributed to all.
So, the investor will get his or her money back as and when the underlying portfolio instruments mature or the scheme receives the money back (in case interest or defaults etc).
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