Franklin Templeton, which had recently shocked investors by closing down six debt schemes, has generated enough cash in other fixed income schemes to meet any redemption pressure.

Sanjay Sapre, President, Franklin Templeton (India) said other fixed income schemes, which are open for subscription and redemption, invest in highly liquid instruments such as government securities and AAA rated papers.

"We have already generated a significant amount of liquidity in these portfolios to meet any redemption request we may receive," he said in a note to investors.

Fund of Funds too take a hit

Interestingly, the net asset value of seven fund-of-funds have also taken a hit as they had invested in six debt funds that were closed recently.

The Valuation Committee has decided to provide an illiquidity discount and fair value these fixed income schemes at 50 per cent of their daily NAV as a result of the prevailing illiquidity in the underlying schemes held in the FoFs, said the fund house.

The FoFs that have been affected include Franklin India Dynamic Asset Allocation Fund of Funds, Multi-Asset Solutions Fund and five plans under Lifestage Fund of Funds. While investors are allowed to transact in the FoFs, it will receive proceeds from the orderly wind up of its underlying investments. The decision will preserve value for investors who remain invested while providing investors liquidity at the fair valued NAV.

All incremental fixed income allocation of these FoFs will be invested in CBLOs (Collateralised Borrowing and Lending Obligation) and cash equivalents as temporary defensive investments.

The equity component of FoFs will be invested in Franklin India Equity Fund.

Covid takes toll

Allaying investors concern that their money is not lost in six schemes that were closed, Sapre said the trustees will start to return the money as the schemes liquidate the portfolio holdings.

The schemes have their maturity profile and in general shorter duration schemes will be able to return investors money faster, he said.

The six schemes invested in papers across the credit rating spectrum from AAA to A rated. This strategy served investors till recent times and generated cash flow even during the last 6 months which were the most turbulent times in the credit markets. It generated signification cash from a majority AA rated papers, he said.

The current Covid pandemic created a severe market dislocation particularly for the types of investments that these six schemes hold, though the issue of lack of risk appetite, reduced volumes and illiquidity for corporate bonds was a broader market issue. The inability of the schemes to meet daily redemption was a direct result of of the market condition created by the pandemic and extended lockdown, said Sapre.

"The extraordinary difficult decision to close six of our schemes in a category that we had created was taken as it was the only viable option to preserve value for our investors in current unprecedented environment," he said.

Assuring investors that Franklin Templeton is not quitting India, Sapre said the fund house is doing all it can to return investors money at the earliest and regain investors trust in the brand.

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