Coronavirus impact: Franklin Templeton Mutual Fund shuts six schemes, Rs 30,800 crore investor wealth stuck

With the coronavirus crisis drying up liquidity in the Indian financial system, one of country's oldest asset management companies (AMC) Franklin Templeton Mutual Fund has voluntarily decided to close its six debt schemes effective from April 23, 2020. This will result in locking in of investor wealth worth Rs 30,800 crore. The AMC has cited redemption pressure and lack of liquidity in bond markets for shutting of schemes.

This is the first instance when a fund house has closed its schemes due to coronavirus crisis.

The six funds are Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.

After the closure of debt schemes, existing investors will not be able to withdraw funds, buy fresh units, transfer to equity schemes or make systematic withdrawals. 

"There has been a dramatic and sustained fall in liquidity in certain segments of the corporate bonds market on account of the COVID-19 crisis and the resultant lockdown of the Indian economy which was necessary to address the same. At the same time, mutual funds, especially in the fixed income segment, are facing continuous and heightened redemptions," Franklin Templeton MF said in a statement on Thursday.

The statement further noted that "an event has occurred, which requires these schemes to be wound up and that this is the only viable option to preserve value for unit holders and to enable an orderly and equitable exit for all investors in these unprecedented circumstances".

Market participants are concerned that the current situation may also impact other debt schemes. Investors are staying away from lower-rated and unrated paper amid the lockdown. Yields of lower-rated paper are high in the market.

Markets regulator Securities and Exchange Board of India (Sebi) on Thursday eased the valuation policies for debt mutual funds and asked them not to term a paper as default if the delay in payment of interest or extension in maturity is mainly due to coronavirus pandemic-related lockdown.

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