News has just come in via a release from Franklin India AMC.
This is concerning 6 of their debt funds.
Please note: The information we have received is only a few hours old and this matter is still developing. We will update this blog as and when we get more information about this matter.
The 6 credit risk funds that are affected :
The AMC has announced that they are shutting down these 6 mutual funds down, effective 24 April 2020. This means that there will be no transactions to and from these 6 mutual funds for now.
You can read the full release by Franklin India AMC here: Franklin India AMC Notice/Release
Franklin India President Sanjay Sapre has released a PDF in which he has answered questions commonly asked by investors. You can download the PDF here: Letter From Sanjay Sapre.pdf.
Sanjay Sapre has also appeared in an interview to CNBC-TV18: Sanjay Sapre Interview.
Your money is not lost.
Franklin India AMC says they have wound down these funds keeping the best interest of the investors in mind. Too many investors were trying to redeem from these funds. This lead to the AMC selling the assets at very poor prices – which is bad for all existing investors.
Now, Franklin will try to sell the papers it holds at attractive prices or wait till they mature. Interest received in the period will be added to the funds’ NAVs. Franklin will pay back investors as and when it sells papers or they mature.
Franklin India claims this decision to be a tough one but also the one which is the best for the investors.
The Association of Mutual Funds in India (AMFI) in a press release has assured investors that their debt fund investments are safe. AMFI Press Release.
The CEO of Franklin India has said that the investors can expect to get staggered payments of the investments till all the underlying assets are sold/liquidated.
This means the investors won’t be able to get their investments back immediately but will get it back over time. The timeline is not clear yet.
Investors will not be charged any management fees on these funds going forward.
Franklin India has come out with a release stating the expected maturity of the assets held by its wound down funds: maturity profile of wound down funds.
Update 15th June 2020: Franklin India has sent a communication to all unitholders of the above 6 mutual funds. The communication sent says Vodafone-India’s interest payment of Rs 102.71 cr has been paid. This holding was in the segregated portfolio of the funds above. The payment to unitholders will be made in a proportionate manner. More details about this can be found here: Payment Under Segregated Portfolio.
Update 24th Oct 2020: Karnataka High Court has said that Franklin must seek the consent of investors before winding down the funds. The funds have already been wound down. It is unclear what the next step will be after this. Franklin has said to many media houses that it is studying the order and will act after consulting with legal experts.
Franklin India starts the e-voting process (online voting) for the investors of its 6 wound down funds.
This vote is to ask investors if they wish for Franklin India to be at the helm of the liquidation process.
If investors vote for Franklin India, the AMC will liquidate the assets held by the 6 wound down funds.
If investors vote against Franklin India, then SEBI will have to appoint a trusted third party to carry out the liquidation process.
It is suggested that you do some research online before deciding how to vote. Weigh both the pros and cons and then decide how to vote.
Link to register for the voting process: Franklin India Voting Email ID Registration.
Update: Franklin India has appointed Kotak Mahindra Bank to monetize the assets of the 6 wound down funds. Details of this appointment can be found here: Press Release – Independent Advisor.
Update 4th June 2020: Gujarat High Court has stayed the e-voting till the hearing on 12th June 2020. The promotor family of Rasna has petitioned that the winding down of the funds was done improperly. This means the AMC cannot have e-voting till the hearing.
Update 9th June 2020: Since the Gujarat HC’s stay on the voting is still in place, the e-voting is not taking place right now.
New investments in these schemes or redemptions/withdrawals from these funds will not be possible—effective from 24 April 2020.
The money invested will be paid back to users as and when underlying portfolio instruments mature or the schemes receive money back as interest.
The entire matter is constantly developing. We will keep updating this blog accordingly.
According to the release by Franklin India (attached above), too many people had started redeeming from mutual funds which led to inadequate funds at the hand of mutual funds to pay to investors.
In a concall, Sanjay Sapre, Franklin India President said that due to covid-19, new investments in the funds had reduced significantly while redemptions were rising. This led to difficulties in paying for redemptions. The AMC borrowed money (as per SEBI guidelines) to pay redeeming investors.
This was unsustainable and would mean redeeming investors would benefit while investors who stayed invested would lose out.
Hence, it was decided that Franklin would wind down these 6 funds to protect the interests of all investors.
All orders (investments and redemptions) made till 23rd April 2020 would be honored. Daily NAV updates would also be announced.
This unprecedented move is being taken by an AMC for the first time in Indian history.
Franklin also added that all other Franklin India funds are not affected in any manner. The AMC says the move they have taken is to preserve the unit value (NAV) of all the affected funds.
According to the release, there will be a sale of the underlying assets and the proceeds of the sale will be shared in an equitable manner with all unitholders.
At the time of writing this, no, other Franklin India funds are being wound down.
We will keep updating this blog as and when we get more info.