Franklin debt funds wind up: NAV in 5 out of 6 schemes higher since April

The combined AUM of the six schemes has increased from Rs 25,648 crore on April 23, 2020 to Rs 26,414 crore as on January 29, 2021

Staff Writer   /   February 4, 2021

In what could allay some fears of losses, Franklin Templeton Mutual Fund has disclosed that in 5 out of 6 debt schemes to be wound up the NAV as on January 29, 2021 is higher than the NAV on April 23, 2020, the date on which the winding up decision was taken. 

The 5 schemes mentioned above are Franklin India Low Duration Fund, Franklin India Ultra Short Bond Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund and Franklin India Short Term Income Plan.

There have been unsubstantiated reports alleging FT investors in the 6 debt schemes can lose 40-50 per cent. However, the NAV data disclosed by the fund-house shows a different picture altogether. 

The decision to voluntarily wind up six schemes has been one of the most difficult decisions for the AMC and its lakhs of investors. Franklin, all the while, has maintained that the decision to wind up those schemes was taken with the sole objective of safeguarding value for investors. 

The NAV values have improved in most of the schemes on account of the cash generated in these schemes over the last 9 months.

“For one scheme (Franklin India Income Opportunities Fund), the NAV is only marginally lower, ” said Sanjay Sapre of Franklin Templeton in an investor communique. 

Further, the combined AUM of the six schemes has increased from Rs 25,648 crore on April 23, 2020 to Rs 26,414 crore as on January 29, 2021.

Recently, the Supreme Court permitted the distribution of available cash in the schemes and directed that an amount of Rs 9,122 crore (distributable surplus as of January 15, 2021) be distributed to the respective unitholders in proportion to their holdings in the schemes under winding up.

Already, across the six schemes under winding up, an overwhelming majority of unitholders (around 96% by unitholders) voted in favour of the winding up. While some reports have alleged that due processes were not followed for the voting, the Supreme Court has so far not  given any order on this issue. 

From April 24, 2020 to January 29, 2021, the six schemes under winding up have received Rs 14,391 crore from maturities, pre-payments, and coupons. Some of this cash has been used to repay borrowings.Fiv

Five schemes have turned cash positive and have Rs 9,698 cash available to return to Unitholders. 

The inflows received across 6 schemes are nearly 46% higher than anticipated in the maturity profile published on April 23, 2020.

The borrowing level in Franklin India Income Opportunities fund, the only fund with outstanding borrowing, has steadily come down from 37.55% on April 24, 2020 to 5% at the end of January 2021.

It will be pertinent to note that of the Rs 14,391crore received since April 24, 2020, slightly more than half of this amount has been received from securities rated “A”, followed by securities rated “AA”. Much of this cash has been generated from securities which were unlisted, or where FT was a majority holder – nearly 28% of the cash is from unlisted securities and nearly 75% of the cash is from securities where the schemes are the sole or majority holders.

Most importantly, this cash has been received without any secondary market sale (active monetization) of securities in the six schemes. 

The next Supreme Court hearing in this matter is scheduled for February 9, 2021.

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