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How much has Franklin Templeton Mutual Fund repaid its investors?

After two years of winding-up and eight tranches of payments, recovery from few exposures remains.

April 27, 2022 / 10:52 AM IST
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Franklin Templeton's schemes have repaid majority of the funds owed to the investors. In several cases, the repayments have come as the debt securities have either been sold in the markets or the borrowing corporate has prepaid the dues to take advantage of lower interest rate options.
Part of the initial cash flows that these funds received were used to settle the borrowings that the funds had to take after Covid-19 outbreak in 2020. There was a huge surge in redemption requests on Franklin Templeton's schemes, but the schemes couldn't sell their investments in markets. Post Covid-19, the market for credit risk investment dried up, which is where these schemes had bulk of their investments. Scheme-related expenses like transaction costs, margin money to Clearing Corporation of India and redemptions that came in on April 23 2020 before wind-up was announced, had to also be borne by the schemes. No fund management fees were charged by the schemes since wind-up decision.
Part of the initial cash flows that these funds received were used to settle the borrowings that the funds had to take after Covid-19 outbreak in 2020. There was a huge surge in redemption requests on Franklin Templeton's schemes, but the schemes couldn't sell their investments in markets. Post Covid-19, the market for credit risk investment dried up, which is where these schemes had bulk of their investments. Scheme-related expenses like transaction costs, margin money to Clearing Corporation of India and redemptions that came in on April 23 2020 before wind-up was announced, had to also be borne by the schemes. No fund management fees were charged by the schemes since wind-up decision.
Franklin Templeton’s schemes are exposed to certain securities that had debt-related concerns. While Vodafone and APCRDA (an Andhra Pradesh government entity) have been meeting their debt servicing obligations, the schemes have had repayment troubles in some of the other exposures. Franklin Templeton along with other fund houses has been seeking recovery of YES Bank’s AT-1 bonds in the courts, after RBI decided to write-down these bonds' value to zero. ADAG, Future and Essel group exposures have not been servicing their debt either.
Franklin Templeton’s schemes are exposed to certain securities that had debt-related concerns. While Vodafone and APCRDA (an Andhra Pradesh government entity) have been meeting their debt servicing obligations, the schemes have had repayment troubles in some of the other exposures. Franklin Templeton along with other fund houses has been seeking recovery of YES Bank’s AT-1 bonds in the courts, after RBI decided to write-down these bonds' value to zero. ADAG, Future and Essel group exposures have not been servicing their debt either.
While some of the Franklin Templeton's exposures have defaulted on their debt obligations, several of its exposures continued to service the debt repayments and there were also securities that were sold at a profit. This has led to the cash distribution being over 100 percent.
While some of Franklin Templeton's exposures have defaulted on their debt obligations, several of its exposures continued to service the debt repayments and there were also securities that were sold at a profit. This has led to the cash distribution being over 100 percent.
The six Franklin Templeton schemes could offer high yields to investors as these took credit risks. Up until Covid-19 struck, this strategy worked well, but post-Covid-19 the credit climate got extremely challenging and sharply brought down liquidity in the debt markets. Franklin Templeton's high risk-high return play in its yield-focused schemes became its Achilles' heel when debt markets froze and redemption pressures on its schemes jumped.
The six Franklin Templeton schemes could offer high yields to investors as these took credit risks. Up until Covid-19 struck, this strategy worked well, but post-Covid-19 the credit climate got extremely challenging and sharply brought down liquidity in the debt markets. Franklin Templeton's high risk-high return strategy in these yield-focused schemes became its Achilles' heel when debt markets froze and redemption pressures on its schemes jumped.
Jash Kriplani is a journalist with over ten years of experience. Based in Mumbai. Covering mutual funds, personal finance. His last stint was with Business Standard, where he covered mutual funds and other developments in the financial markets
first published: Apr 25, 2022 08:12 am
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