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Franklin Closed 6 DEBT Funds - How To Do a Course Correction

Franklin Closed 6 Debt Funds: How it impacts you? How to do a course-correction?

by Holistic Leave a Comment | Filed Under: Investments

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Franklin Templeton Closed 6 Debt Funds: What’s your impact? How to do a course-correction now?

On 23-04-20 Franklin Templeton Mutual Fund announced the winding up of six of its debt funds.

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

There will be no purchases and redemptions made in these funds post-cut-off time on April 23, 2020.

What does it mean?

If you are an existing investor in any of the above-mentioned funds, then you can no longer redeem your money. Your money is locked in these funds, until the mutual fund company makes further payments.

You could have received a mail from Franklin regarding this. If you have not read that, you may please read the same here.

Why did Franklin make such a decision?

Bond markets are facing reduced liquidity because of the COVID-19 economic crisis.

This decision to wind up schemes is to ensure orderly and equitable exit of investors without having to sell in the illiquid market.

The papers in which they have invested are less-liquid now. If they redeem them now they have to sell it for a discounted rate.

Investors are redeeming from these Franklin funds. To meet the redemptions if they sell the underlying papers at a discounted rate, it will be a loss for investors who are redeeming and who are remaining invested.

So they decided to wind up the funds. As and when the underlying papers mature or when the liquidity for these investment papers normalise, they will make the payment in a staggered manner to investors.

When will they make the payment?

The decision to wind up the funds and stop redemptions is to prevent further value deterioration in these funds on account of selling the underlying investment papers in the portfolio at very low prices. As the debt market normalises, the fund could consider to sell the assets at a reasonable value.

Also, this winding up process will happen in a staggered manner as the underlying papers mature on different dates. The shorter the duration of the fund, the faster it could get wound up. Of the six debt funds,

  • Franklin India Low Duration has 1.2 years Macaulay duration as of March 31,
  • Franklin India Dynamic Accrual Fund (1.9 years),
  • Franklin India Credit Risk fund (2.2 years),
  • Franklin India Short Term Income Plan (2.15 years),
  • Franklin India Ultra Short Bond Fund (0.54 years) and
  • Franklin India Income Opportunities Fund (3.2 years).

Franklin Templeton has released the security level portfolio of these 6 schemes and also the maturity profile of these 6 schemes. You can download them below:

1. Security level portfolio as on April 23 2020 for 6 schemes being wound up-PDF

2. Maturity profile and FAQs for 6 schemes being wound up-PDF

Will there be returns during the wind-up to payment period?

The underlying papers will earn interest during these periods and that will be passed on to the investors. Franklin Templeton has mentioned the expected return for the first year in the maturity profile PDF-Download Here.

How it could impact your financial plan?

This situation was completely unexpected, unfortunate and unpredictable. Though, this could be a temporary setback, this could have caused you a serious impact on your financial plan and goals
or it could seriously affect your credit risks.

If you have invested your emergency funds or funds needed for your short-term goals in these funds, then you need to revamp your overall portfolio to accommodate this setback in your financial plan.

How to overcome this negative-impact?

To get back money from these funds, as an investor you don’t have to do anything. Franklin Templeton will release payments periodically either when the liquidity comes back or when the underlying investment papers mature.

    1. Reassess your other credit-risk investments

    If you own other credit risk oriented debt funds, reassess them. If there is going to be a ripple effect for the Franklin debt funds closure, and then will it affect your other debt funds?

    Do you own any company deposits? Please check the credit risk in those deposits.

    2. Emergency Funds and Short-term Goals Money Locked

    If you have kept your emergency reserve or the corpus required to meet your short-term goal, then you need to create an alternate plan.

Some options would include:

i) Other Fixed income / debt investments:

If you have other fixed income / debt investments, you can ear mark them for emergency purpose and also to meet your short-term goals.

ii) You can consider withdrawing from your PPF or EPF investments.

iii) Taking Loan: This option comes with an interest cost. You can take loan against your other investments like your insurance policies, mutual funds and gold. As and when Franklin makes payment you can start repaying your loan.

Conclusion

Definitely it would have been a shocker to you as an investor when a long-term player like Franklin closed its 6 funds. It has happened and things are out of our control. To bring things under your control, doing a overall revamp of your financial plan is needed.

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I have been using Holistic Investment Planners from last one year. The journey has been fantastic. Being a finance person myself I always thought we can look after and plan own finances also. However, due to lack of time and deciplain the things are not always as desired. After joining with Holistic Investment for the first time Icame to know the Financial goals and quantified them. Some dreams were unrealistic based on the earnings and savings so had a reality check. Also got the information and deciplain of investing on regular and more rewarding securities. I definetly suggest to use Holistic Investment Planners. They are professionals, available and hear youor full story before presenting plans. They are flexile in the sense if there are some urgent deviations required, they help to plan the same. For all professionals/individuals I would suggest using professional help of Holistic Investment Planners for best results in long term investment and financial goals achivements. Last advise will be to start early in your life. It really pays well to start in the beginning itself else the dreams needs to adjust :)
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6. September, 2021.
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Srinvas Kannan
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30. July, 2021.
I came across Holistic investment planners almost 5-6 years back, but I did not have the trust since I had met a few of them who did not sound promising. Then I started investing through a financial advisor of my friend. After 4 years of investing the returns were very low. I was disappointed and started looking for financial advisors when I came across Holistic investment. I had a detailed discussion about my goals and the way they would approach achieving my goal before deciding to switch my investments to them. After a thorough analysis of my then existing portfolios, they suggested new ones and we zeroed-in on 6 schemes/funds where our investment would be split. I am glad I made the decision of switching over and taking Holistic planner's advise, my returns are handsome and I only wish I could have taken their help/advise 5 years back itself. Neverthless, I would like to recommend their services for investment and financial advise if someone is serious about their investments.
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