Retiree investors in wound-up Franklin schemes fret over repayment timeline

At least 30% of assets of wound-up schemes in unlisted securities

Retirees exposed to the schemes being wound up by Franklin Templeton Mutual Fund (MF) are concerned over the timeline of their payments.  According to industry participants, the schemes were popular among retirees, as these offered higher yields through managed credit strategies.   

“We had invested Rs 7 lakh in Franklin Ultra Short Duration Fund. Recently, the investment value had started eroding, which was surprising,” said 65-year-old Rajesh Dhaniwal, adding, “Later, we realised it was because of the markdowns the fund had to take on credit exposure.” 

According to sources, around 300,000 investors are exposed to the various wound-up schemes of Franklin Templeton MF.

Franklin Templeton MF’s management has assured investors that the funds will be paid in a staggered manner, but investors remain concerned over the timeline.

“We have communicated the reasons and market circumstances that led us to take this extremely difficult decision, which was purely to protect value for our investors,” Sanjay Sapre, president at Franklin Templeton MF, said in a note.

“As the schemes liquidate portfolio holdings, subject to market conditions, and receive coupon payments and scheduled maturities, the trustees will start to return money to investors at the earliest,” he added.
 

According to the sources, the six wound-up schemes of Franklin MF had 32 per cent of its assets exposed to unlisted securities as of April 22, 2020. 

 

 

“Unlisted securities are witnessing even higher pressure due to illiquidity, as the Securities and Exchange Board of India (Sebi) wants MFs to reduce participation in this segment in a phased manner,” said a fund manager.  

However, advisors say investors need to stay patient with these schemes. 

“While these are credit-oriented schemes, the payout will happen sooner or later, as all the portfolio investee companies are unlikely to face payment risks,” said Srikanth Matrubai, chief executive officer of SriKavi Wealth.

Retirees are often attracted to high-yielding debt schemes, where they can use systematic withdrawal plans, or SWPs, to take out money monthly.

“The Franklin episode should serve as a wake-up call to investors to avoid investing in schemes that take exposure to high credit-risk investments,” said Vidya Bala, co-founder of PrimeInvestor.

“Given the liquidity risks in such schemes, using them for monthly income generation through SWPs may not be a 

feasible option,” she added.

Meanwhile, the timeline of the recovery can also get impacted if corporates or other portfolio investee companies seek to reschedule their maturities.

Sebi has relaxed its default valuation norms for corporates in light of the slowdown in economic activity amid the coronavirus pandemic.

As part of the relaxations, any rescheduling or extending of maturing on bonds may not be categorised as default if it is done for the coronavirus-related lockdown or the moratorium extended by the RBI to borrowers of non-banking financial companies.