The country’s leading mutual fund house Franklin Templeton India has allowed the closure of 6 debt fund schemes because of which Rs 28,000 crore are stuck of investors.
Regarding this, former Finance Minister of India and senior Congress leader P Chidambaram has said that Franklin Templeton’s decision is a matter of serious concern for investors, mutual fund industry and financial markets.
The government dealt with a similar situation in 2008 in one day
Referring to the 2008-09 recession, Chidambaram said, “I remember a similar situation arose in the first week of October 2008 (during the global financial crisis), when mutual funds faced liquidity shortages. At that time the Central Government immediately consulted RBI, SEBI, IBA, AMFI and others. An immediate meeting of the Financial Stability and Development Council (FSDC) was called and a solution was found on the same day. The next morning, RBI and SEBI officials met at 8 am and the RBI announced a 14-day special repo facility and allowed NDTL an additional 0.5 per cent. This serious situation was then resolved. Fortunately, markets will be closed today and tomorrow. I hope that the government will take prompt action and resolve the situation soon”
These 6 schemes are closed :
- Franklin India Templeton Low Duration Fund
- Franklin India Templeton Income Opportunity Fund
- Franklin India Templeton Short Bond Fund
- Franklin India Templeton Credit Risk Fund
- Franklin India Templeton Short Term Income Plan
- Franklin India Templeton Dynamic Acquired Fund
The schemes have been closed citing the withdrawal of units due to the Corona virus epidemic and the lack of liquidity in the bond market. Regarding its decision, the company said that “due to Corona crisis people have withdrawn their money. As a result the company has a shortage of cash. Now as the pressure of redemption increases, the securities of all these funds will be sold. Money will be returned to investors in several stages. The company says that fear of money getting stuck in debt funds has increased. The total asset base of these 6 open ended debt schemes is about 28 thousand crores.
What does this mean for investors?
It is evident that the financial health of these funds is deteriorating, hence the closure. After 23 April 2020 neither new investment can be made in these funds nor those who have their units will be able to sell and redeem it. However, these schemes will release their Net Asset Value (NAV) daily as before. Investors of these funds will not be charged for fund management. Investors’ investment is locked until the fund house pays it. Investors will get their money back but it may take some time now.
What will be the impact on other funds?
This will have no impact on funds that have good ratings and low-risk debt securities. However, it may have a bad impact on securities with low ratings and high debt risk. AMFI says that most of the fixed income mutual funds invest in good credit quality securities and have sufficient liquidity to continue functioning, so there is nothing to worry about.
Total cases in India is 24,506; death toll has reached 775
Coronavirus is rapidly spreading. Total cases in the world has crossed 28 lakhs, 1lakh 97thousand 859 people have died and 8 lakh 11 thousand 777 people have recovered. US tops the list. Cases in US are increasing swiftly. Presently, it has reached 9,25,758 with traumatic death toll.
In India, the total cases has reached 24,506 with 775 deaths and 5,063 recoveries. In the last 24 hours over 1400 cases has been reported positive.