Franklin Templeton fund closure Highlights: 'Investors currently in state of fear and shock'

The decision by Franklin Templeton to voluntarily wind up six of their debt funds has shaken up the debt mutual fund industry. This coming after a series of NAV write-downs/segregation by various fund houses due to downgrades/defaults by investee companies will not do any good for the risk-on sentiments of retail & HNI investors. This episode once again highlights the weakness in the secondary debt markets in India as they tend to get illiquid by small bouts of micro and macro negative news. Despite the categorization by SEBI, a lot of debt schemes take on risks that are not reflected in their scheme riskometer or their category names. Fund managers with a view to generate higher return tend to take higher risks in the portion of other investments permitted in even safe low risk categories. Investors would also do well to desist from chasing just returns without having regards to the risk taken by the respective schemes. AMFI on its part should educate investors on this aspect (how to assess this risk). On a higher level, faster legal resolutions/recoveries will help in development of buying out of stressed assets and improving the depth and liquidity in secondary debt markets. One hopes that this is a one-off case and we will not see more such cases even though the economy is yet to come out of this difficult phase.

Franklin Templeton fund closure: How did Santosh Kamath, the master of managing credit risk funds, lose the plot?

With 26 years of research experience and 19 years of portfolio management experience, Kamath is said to be a key decision-maker on investing in sub-AAA rated bonds or any form of structured debt.... Read More

Franklin Templeton’s fund closure is an eye-opener for the RBI that its liquidity efforts are either insufficient or are not effective in de-freezing the liquidity crisis, Umesh Mehta, Head of Research, Samco Securities, says in an interview to Moneycontrol’s Kshitij Anand. Read here

On Thursday, Franklin Templeton announced that it has shut down six of its credit strategy oriented debt mutual fund schemes.... Read More

After Franklin Templeton Mutual Fund closed six of its open-ended debt funds, many Twitter users shared their views on the unexpected move.

Here's what Twitter users are saying about Franklin Templeton fund closure

, head of research at IIFL Securities told Bloomberg: The closure of Franklin Templeton debt funds will be a jolt to the corporate debt market in India. These funds were one of the top performing for last couple of years due to higher risk being taken by them by lending to lower-rated corporates. We believe it’s time for RBI to be even more strong in its intervention in the credit market.

, Head - RankMF, Samco Securities: Retail Investors should be prudent while investing in debt funds and should always look only for the quality of the portfolio and should completely ignore past performance, big names and big brands while making investments. Investors have no choice, but to wait so that the liquidity gets back to the lower end of the system as and when the lock down is over and economic activities start, only then the AMC will pay back the realisable money. (2/2)

, Head - RankMF, Samco Securities: In crisis situations any portfolio with exposure to credit risk debt instruments have risk of liquidity and are will be adversely impacted. Further the debt funds are dominated by corporates and HNIs from investment side and most of the corporates due to Covid 19 lockdown have liquidity issues and are therefore aggressively redeeming debt mutual funds to meet cash requirements. Franklin Templeton was not able to funds these redemptions and therefore winded up 6 schemes under redemption pressure, now as and when the money is realized the same will be credited to the unitholders. (1/2)

, head of research and co-founder Primeinvestor.in told Bloomberg: The winding up of as many as six funds is unprecedented. Having already used up the liquidity to meet large redemptions, they had no choice but to wind up to prevent a run on the funds that would have induced them to sell good-quality paper and hold on to the bad ones.

, Managing Director - Investment and Research, KR Choksey Securities told Bloomberg: There is fear in the minds of investors that other mutual funds may not be immune to the problems faced by Franklin Templeton. The Reserve Bank of India and other regulators to roll out further measures to support funds and financial markets.

There are fears of investors hitting the panic button after Franklin Templeton wound up six of its debt funds.Moneycontrol'sNikhilWalavalkarfinds that there is no ruling out of a contagion, with investors of other unaffected debt mutual funds running to redeem their units.

, chairman of Foundation of Independent Financial Advisors tells CNBC-TV18: I think the whole market was a non-AAA space. There has been so much fear that extended lockdown will result in some of these non-AAA companies moving from a liquidity situation to maybe an insolvency situation -- that has resulted in a run on the Franklin Templeton.

, professor, SPJIMR tells CNBC-TV18: Franklin Templeton closing six of its schemes was not about bad credit but heavy redemptions had made the situation challenging amid the coronavirus crisis. I do expect the RBI and maybe the government to step in right now. Fundamentally, the problem is that the liquidity in the secondary market for corporate debt stays limited. Last month in March, the redemptions from the non-liquid, non-overnight funds which is about Rs 7 lakh crore of AUM of mutual funds itself was over Rs 1 lakh crore. In addition, because of the global risk-off, you saw FPI selling bonds as well. So the system is simply not geared towards handling these kind of redemptions at one shot. This is not about insolvency or about bad credit.