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Franklin shocker: The reality is investors are left holding the baby

Given that credit cycle risks were apparent for a while, risk aversion is not unreasonable

April 25, 2020 / 03:27 PM IST

Lisa Pallavi Barbora

Late on Thursday night, news broke that six debt schemes from Franklin Templeton Mutual Fund are being wound up. Hitherto open-ended schemes, they will now not allow any fresh investments and any exits. What’s left in the schemes remains. As and when securities get sold, investors will get proportionate money back. Only high-risk situations warrant such a move. Hence, it’s hard to be too optimistic about the extent of recovery from individual securities.

This is not one or two or even three schemes, six schemes which have been closed for investors with the objective of winding them up. Then, there is also the Dynamic Asset Allocation Fund of Funds which invests in one of these schemes for the debt allocation.

The management had indicated COVID-19 outbreak as the trigger for redemptions. However, outflow in assets under management (AUM) for the six schemes started in the last quarter of calendar 2019 itself. Perhaps the exposure to Essel Group companies across these schemes was the trigger. By December-end, AUM for four of these schemes was lower by 15-30 percent.