One year of FT MF debt saga: Asset manager sees 20% drop in holdings

Market participants say if the fund house is able to put the 2020 debacle behind by returning money to investors of the six debt schemes, it can make a strong come back

It’s been a year since Franklin Templeton Mutual Fund pulled the plug on its six debt schemes. The move has proved costly for the fund house. Its overall assets under management (AUM) have shrunk 29 per cent over the past year, even as the industry has grown 20 per cent.

The US-headquartered fund house’s average AUM for the March 2020 quarter stood at Rs 1.16 trillion. At the end of March 2021, the quarterly average AUM had dropped to Rs 82,553 crore, the data provided by industry body Association of Mutual Funds in India (Amfi) showed.

The mutual fund (MF) industry AUM for the period under consideration grew from Rs 27 trillion to Rs 32 trillion.

The erosion in assets has led to Franklin MF’s position slipping from 9 to 11 on the league table of domestic MFs, in terms of their asset size.

On April 23, 2020, Franklin MF announced the closure of six debt schemes citing liquidity challenges due to the Covid-19 outbreak.

The fund house has been hit more severely on the debt side. The data from Value Research showed that the assets under Franklin India Liquid Fund, which had AUM of Rs 6,962 crore in March last year, declined to Rs 2,179 crore in March 2021, a drop of 69 per cent.

Franklin India Saving Fund’s AUM declined 65 per cent to Rs 1,163 crore, from Rs 3,357 a year ago.

“The move by the fund house to shut the six schemes worried investors, who redeemed from other debt schemes, as well. This, coupled with provocation by the distributor, led to money moving out of Franklin’s debt schemes,” said Dhirendra Kumar, CEO, Value Research.

The silver lining for the fund house had been the performance of its equity schemes. Franklin India Flexicap Fund, Franklin India Prima Fund, and Franklin India Bluechip Fund reported growth in AUM over the past year.

“The equity funds of Franklin are high-quality in nature. They have a well- constructed portfolio and are well run. This will show in their performance in the years to come,” added Kumar.

Market participants said if the fund house can put the 2020 debacle behind by returning money to the investors of the six debt schemes, it has the potential to make a strong come back.

Last week, Franklin MF announced that the six schemes had received total cash flows of Rs 17,312 crore.

The net assets value (NAVs) of all the six schemes was also higher, as on April 15, 2021, vis-à-vis their respective NAVs on April 23, 2020, the date on which the winding-up decision was taken, said the fund house.

Despite the turbulence seen over the past year, Franklin MF said its “commitment to India remains steadfast.”

“We were early entrants in the Indian MF industry. We have no plans to exit our India business and we remain a local company with a global parent. Despite the pressures of the marketplace, the seasoned investment professionals in our investment management groups remain focused on their investment objectives and the delivery of consistent long-term results,” the fund house said.