Franklin Templeton shuts 6 debt funds worth ₹31,000 cr, 1st for a mutual fund

Mumbai: Shares of HDFC Asset Management Company tanked 6% and Nippon Life India Asset Management tumbled 12.7% on Friday on fears of increased redemption pressure after Franklin Templeton Mutual Fund announced the winding up of six of its debt schemes.

HDFC Asset Management stock was trading at ₹2437.65 and Nippon Life India Asset Management at ₹229.70. The S&P BSE Sensex was down 516.18 points or 1.62% at 31,346.90.

The six yield-oriented schemes in which investments have been stopped from Thursday are Franklin India Low Duration Fund, Dynamic Accrual Fund, Credit Risk Fund, Short Term Income Plan, Ultra Short Bond Fund and Income Opportunities Fund.

"There has been a dramatic and sustained fall in liquidity in certain segments of the corporate bonds market on account of the Covid-19 crisis and the resultant lock-down of the Indian economy which was necessary to address the same. At the same time, mutual funds, especially in the fixed income segment, are facing continuous and heightened redemptions," Franklin Templeton Mutual Fund said in statement issued late on Thursday.

The Trustees of Franklin Templeton Mutual Fund in India, after careful analysis and review of the recommendations submitted by Franklin Templeton Asset Management (India), and in close consultation with the investment team, are of the opinion that an event has occurred, which requires these schemes to be wound up and that this is the only viable option to preserve value for unit holders and to enable an orderly and equitable exit for all investors in these unprecedented circumstances.

"The decision of Franklin Templeton Mutual Fund winding up their six high yield debt schemes came as a shock to the entire mutual fund fraternity. This is clearly a casualty of the covid-19 pandemic. Debt markets have been facing a lot of liquidity issues over last month even in the high rates papers. Our recommendation to investors is to stick to debt funds which only invest in high-rated debt papers. Please consult a financial advisor to get your needs assessed and invest accordingly. These are uncertain times and financial advisors can help you navigate through this period," Amit Singh, head, Investica said,

However, the decision is restricted to the six funds, and the other equity, debt and hybrid funds are unaffected by this decision.