Franklin Templeton’s debt schemes receive Rs 2,836 crore repayments in November

The six schemes of Franklin Templeton Mutual Fund (FT MF), which were  wound-up in April, received Rs 2,836 crore in November. The total amount received since the winding-up process was started, stands at Rs 11,576 crore.

These cash flows have come on the back of pre-payments, part-payments, maturities and coupon payments from issuers.

Four of the schemes of FT MF are cash positive. These schemes hold Rs 7,726 crore of cash, subject to fund-running expenses.

Turning cash positive

Franklin India Low Duration fund currently holds 48 percent of its assets in cash. Franklin India Ultra Short Bond (46 percent), Franklin India Dynamic Accrual (33 percent) and Franklin India Credit Risk (14 percent) hold significant cash.

The fund house had recently approached the Supreme Court (SC), seeking intervention on the judgment passed by the Karnataka High Court (HC), and to ensure redemptions are halted till legal issues are resolved. The SC will be hearing Franklin Templeton's petition on December 3, 2020.

In its petition, FT MF requested the SC to pause redemptions, as opening of the funds could lead to a ‘run’ on the schemes and force the fund house to sell debt papers at distress prices. If sold at rock-bottom prices, there would be sharp declines in the net asset values of the schemes.

Staying cautious on redemptions

The Karnataka HC had ordered a stay on redemptions from the schemes for a period of six weeks, after pronouncing its order on October 24, 2020. This stay lapses on December 5, 2020.

The petition also stated that the Karnataka HC had taken an ‘erroneous’ view of the regulations pertaining to winding-up of the MF schemes.

“…we considered all possible options over the last few weeks to start returning money to unitholders in the shortest possible time in an orderly manner. This included the option of seeking unitholder consent according to the judgment of the Hon’ble High Court,” FT MF said.

As pointed out in FT MF’s petition to the SC, it had also approached the Securities and Exchange Board of India (SEBI) with the proposal to conduct unitholders’ voting at the earliest, following the Karnataka HC’s order.

SEBI pointed out that there was no clarity on the status of the schemes till such a voting process was completed.

In October, the Karnataka HC held the view that unitholders’ consent was a must to wind up any MF scheme.

In its 333-page order, the court examined various aspects of the matter, including the role of SEBI and the trustees in Franklin Templeton’s decision to wind up its debt schemes. A large part of the HC's order was related to the existing regulatory guidelines for winding up any mutual fund scheme.