Franklin fund of funds to re-jig debt allocation post-exit window

Exposure to wind-up schemes at marked-down valuations to continue

The funds of funds (FoFs) of Franklin Templeton Mutual Fund (MF), affected by the fund house’s scheme wind-up move, will be rejigging their debt allocation by bringing in another scheme. They will continue to hold on to exposure to the affected schemes at marked-down valuations.

On Friday, the fund house had decided to revise the value of the fixed-income scheme allocations in affected FoFs by 50 per cent. Four of Franklin’s life-stage FoF schemes have exposure to Dynamic Accrual Fund, which is among the six schemes being wound up.

Besides, Franklin India Dynamic Asset Allocation Fund of Funds (FIDAAF) and Franklin India Multi-Asset Solution Fund (FIMAS) have exposure to Franklin India Short Term Income Plan (FISTIP).

The six FoFs of Franklin, along with FIMAS, on Friday saw their net asset value (NAV) dip 6-25 per cent, as the fund house took the revaluing exercise following its scheme wind-up move.

Investment advisors say taking the markdown is a fair move. “It is to reflect lack of liquidity in the underlying schemes, as all redemptions have stopped in those schemes as they are being wound up. Meanwhile, FoF investors can choose to stay put as the new scheme coming in is unlikely to be a credit risk-oriented scheme, as that strategy is being wound up by the fund house,” said Amol Joshi, founder of PlanRupee Investment Services.

 

 

While the fund house is proposing the 30-day exit-load free window in FoFs, advisors say investors can stay put. 

“As and when the recovery happens in the underlying schemes, and money comes back to those investors, the FoF investors will start to see recovery. These schemes have several portfolio companies and it will be the wrong approach to think that none of the companies will pay up. Recovery is bound to happen,” said Joshi.

However, the FoFs will continue to operate as normal schemes available for redemptions and subscriptions. The fixed-income-related allocation, for the time being, will be directed towards cash equivalents and collateralised borrowing and lending obligations, or CBLO.

Redemptions in the FoF schemes will be funded through CBLO or other scheme allocations in the portfolios, while taking care that the overall allocation of the schemes is not disturbed.

The whole process of shifting scheme allocation will require the approval of trustees and the Securities and Exchange Board of India (Sebi). Following this, the relevant schemes will be opened up for the 30-day exit window.

As of March 31, FIDAAF had exposure of 45.59 per cent to FISTIP. Franklin Life Stage FoF 50s Plus Plan had 52.2 per cent exposure to Franklin India Dynamic Accrual Fund. According to sources, the fund house has already significantly reduced its FoF exposure to wound-up schemes, but the latest figures couldn’t be ascertained.
 

FoF typically aims to achieve diversification by investing in multiple schemes. The segment, however, has not taken off in India in a big way.