How payment from Vodafone has been distributed to Franklin investors

Franklin Templeton recently received ₹1,252 crore principal and interest payment from Vodafone Idea with respect to one of the bonds issued by the company. The bonds (8.25 per cent maturing July 10, 2020) form part of the six funds’ segregated portfolios which were created in January.

Unlike the money locked in the six Franklin funds’ main portfolios, where there is a big uncertainty over the recovery, due to the winding-up matter pending in court cases (matter to be heard in Karnataka HC today), dues recovered in the segregated portfolios will be paid to investors soon.

Franklin has fixed July 17, as the record date for the payment to investors.

So how will the ₹1,252 crore received from Vodafone be distributed to investors?

Payment from segregated portfolios

SEBI allows debt funds to create segregate portfolios of bonds that are downgraded below investment grade by rating agencies. The fund house separates its main portfolio of the scheme comprising investment grade bonds and the segregated portfolio. It issues equal number of units in the segregated portfolio as held in the main portfolio.

Recovery of money, partial or full, in the segregated portfolio, is distributed to the investors in proportion to their holding in the segregated portfolio.

8.25 per cent Vodafone Idea bonds maturing on July 10, are part of the segregated portfolios of the six funds — 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.

In June, Franklin had received ₹103 crore of interest on these Vodafone bonds which was paid to investors. The full payment of principal and interest received on these bonds will now be paid to investors and units they hold in these segregated portfolios will be extinguished.

According to information put out by the fund house, of the ₹1,252 crore, ₹804 crore accrues to Franklin Ultra Short Bond Fund alone. The balance, ₹198 crore, ₹85 crore, ₹22 crore, ₹95.6 crore and ₹47 crore will be distributed to Franklin India Low Duration, Franklin Short Term Income, Franklin Credit Risk, Franklin Dynamic Accrual and Franklin Income Opportunities funds respectively.

These amounts will be distributed to investors based on the number of units they hold in each of these segregated portfolios.

Price per unit

Each of the six funds have several schemes under them — growth, dividend, direct etc. Hence, the amount received by one fund is first apportioned to various plans under it, based on their respective AUMs (asset under management). For instance, if Ultra Bond Fund receives ₹800 crore and of that about 20 per cent of the AUM belongs to the growth plan of the fund, then ₹160 crore will go to that particular plan.

If you are an investor in the growth plan of Franklin Ultra Bond Fund, then the amount you receive will depend on the number of units you hold in the particular plan and the price per unit (payment pertaining to Vodafone). The price per unit is arrived at by dividing the total payment received by the scheme by the total number of outstanding units in the scheme.

For instance, based on the information provided by the fund house, the price per unit for retail growth option under Franklin Ultra Bond Fund works out to ₹1.34. If you hold 1,000 units then you will receive ₹1,340 from the fund on account of Vodafone repayment. Similarly, if you hold units in the retail growth plan of Franklin Short Term Income Fund, then the price per unit works out to ₹34.9. If you hold 100 units in the scheme, then you will receive ₹3,490 from the Vodafone bonds.

After you receive the payment due to you, the units you hold in the segregated portfolio (holding 8.25per cent Vodafone bonds) will be extinguished.