Sebi 'sees reason' in shutting down six debt funds, says Franklin Templeton

Association of Mutual Funds in India urges investors to remain calm after Franklin Templeton shut the debt funds.

Franklin Templeton Mutual Fund said on Friday Sebi, the capital markets regulator, saw "reason" in its decision to shut six of its debt funds in India because of market dislocation and a lack of liquidity amid the coronavirus pandemic.

The fund manager--- the first to shut schemes because of the coronavirus pandemic--said there was "dislocation" in the markets and investors would have to wait for a few months to get their money. The six funds had assets under management of over Rs 25,000 crore

"We did have extended engagement with the regulator on this and the regulator is also very cooperative. Sebi has been wonderful; they also saw reason...that the best option would be to wind up the fund. It's a very thoughtful decision not taken in haste," said Vivek Kudva, Franklin Templeton Group's managing director, on an investor call.

Sanjay Sapre, the company’s managing director for India operations, said the mutual fund had two options: to sell its holdings at a significantly lower cost or borrow more to fund the investments. 

"We realised that it is going to harm investors because we do not see much clarity on both the market and the economy moving ahead. We took a call that it is pertinent to put a pause to these (six) funds, wind them over a period of time in an orderly and non-disruptive manner," said Santosh Kamath, chief investment officer for fixed income at the company.

Kudva said investors will keep getting paid periodically as the money gets generated, while Sapre pointed to the possibility of an "equitable" distribution of the proceeds if a scheme is shut.

The Association of Mutual Funds in India on Friday urged investors to remain calm after Franklin Templeton shut the debt funds. AMFI said the debt portfolios of most mutual funds had "superior credit quality" and were "fairly liquid" and called on investors to "not get side-tracked by an isolated event".

Franklin Templeton Mutual Fund, one of India's most prominent mutual fund houses within the fixed income space, said late on Thursday it would wind up six credit funds with a large exposure to higher-yielding, lower-rated credit securities.

The asset manager, which has been in India for 25 years, shut down 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 on Thursday.