Franklin Templeton, one of the oldest fund houses, decided to wind up six fixed-income and credit-risk funds run by its Indian wing. The decision taken on Thursday night was driven by the 40-day-long nationwide lockdown, which will end on May 3.
With this move, the company has effectively locked in Rs. 30,800 crore of investor money.
Here's everything you need to know about this.
What is Franklin Templeton? Why did it wind funds?
Founded in 1947 in New York, Franklin Templeton is an American holding company that manages billions of dollars of its private, professional, and institutional investors. It has over 455 different open-ended mutual funds and 7 closed-end funds.
After years of working in the Indian market, the company witnessed a dramatic dip in liquidity, hence, it decided to close funds, effective from Friday.
What did the company say about the decision?
In a statement released late last evening, the organization said the lockdown hurt liquidity in the corporate bond market.
It said this was the "only viable option to preserve value for investors and to enable an orderly and equitable exit".
Sanjay Sapre, the President of the Indian unit of Franklin Templeton, said the assets of these funds would be handed over to an administrator.
Heightened redemptions, reduced liquidity forced company to take this decision
"Reduced liquidity in the Indian bond markets for most debt securities and unprecedented levels of redemptions following the COVID-19 outbreak and lockdown compelled us to take this decision," Sapre said. The mutual funds in the fixed income segment are facing heightened redemptions, the company claimed.
What does this mean if you are an investor?
This move means that investors will not be able to make purchases or redemptions in these funds from April 23, 2020. You can no longer redeem your money, till Franklin Templeton indulges in further payments.
Purchases through Systematic Investment Plans, Systematic Transfer Plans, and Systematic Withdrawal Plans will also not be allowed henceforth.
This is the first time such an incident happened in India.
Which are the funds that have been impacted?
The funds that have been closed are — Franklin India Low Duration, Franklin India Dynamic Accrual, Franklin India Credit Risk, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund, and Franklin India Income Opportunities Fund.
Financial adviser Surya Bhatia told TOI that investors will get money when maturities happen in respective portfolios and suggested against "over-reacting".