All About winding up of 6 Schemes operated by Franklin India Asset Management Company

We all know that this Pandemic has hit hard to everyone. But we never knew that such kind of thing would also happen.

On 23rd April 2020 the breaking news was ‘Franklin India Shuts it’s 6 Debt Schemes due to heavy redemption pressure’.

The 6 schemes were:

1) Franklin India Low Duration Fund

2) Franklin India Dynamic Accrual Fund

3) Franklin India Credit Risk Fund

4) Franklin India Short Term Income Plan

5) Franklin India Ultra Short Bond Fund

6) Franklin India Income Opportunities Fund

Main reason for being shut down: There was heavy redemption pressure from the investors and lack of liquidity in Bond Market. As a reason the Top Management and the Fund Managers decided to Shut the schemes with no additional purchase (either Lumpsum, SIP or STP) and hence all the amount invested was stuck.

This was a more panic situation in India rather than the Pandemic which I feel, reason being majority of the schemes were short term investments scheme which has minimum rate of returns but operated as liquid funds. Considering the Pandemic, people would obviously think that in worst come wort situation there immediate savings would be beneficial but such was not the case with the Franklin Mutual Fund unit holders of these 6 schemes.

The Total AUM (Asset Under Management) i.e. the amount invested in these 6 Schemes was Rs 25000 crores as on 23rd April 2020.

Lets look at the past history of these Six Funds

Fund Incorp. Date 3 years Return 5 years Return
Low Duration Fund Feb 2000 5.09 6.60
Dynamic Accrual Fund March 1997 4.36 6.32
Credit Risk Fund January 2013 4.81 6.63
Short Term Income Plan January 2002 2.52 4.88
Ultra Short Bond Fund January 2013 7.45 8.05
Income Opportunities Fund January 2013 3.59 5.88

The decision of voluntary winding up of the funds was not accepted by the Unit Holders and hence the unit holders filed a petition before the Karnataka High Court.

The High Court ruled in favour of the Unit Holders and put a Stay on the operations of the 6 schemes contending that the winding up shall not be done without the consent of the Unit Holders.

During the ongoing case some shut schemes received money but could not distribute because of the Stay Order.

Sanjay Sapre, President of Franklin Templeton Asset Management Co. said they will appeal before the Supreme Court for some aspects of the stay order.

Finally on 03.02.2021, the Supreme Court heard the matter and an Interim Relief was given to the Company. The supreme court directed, Franklin templeton to distribute Rs 9122 crore cash balance available as on 15.01.2021 to unit holders of the 6 Schemes within 20 days.

The Supreme Court has appointed SBI Mutual Fund to carry out the exercise of disbursement. Sanjay Sapre the President has communicated to the unit holder through e-mails that they shall co-operate SBI MF in distributing Rs 9122 crore cash surplus of these 6 Schemes.

To note herewith that Franklin in altogether received Rs 14391 crore in six schemes as on 29.1.2021 by way of maturity and pre-maturity of amount and out of which Rs 4621 crore shall be used to repay the borrowings and remaining shall be distributed after deducting the fund expenses.

Further, Franklin India Income opportunities fund at present has no surplus. However, its borrowings has come down to 5% of the AUM (Asset under Management).

Personal Opinion: If the investors allow for the voluntary winding up of the 6 Schemes then the amount to returned shall be quicker and easier. However, if an official liquidator is hired than the duration for realisation of the amount will be much late.

On an average the investors shall be able to get back their invested amount in a period of 4-5 years.

Just to gain some knowledge Investing in Mutual Funds both have pros and cons: Pros: i) Diversified advanced portfolio management

ii) Dividend Reinvestment

iii) Maximum benefit of Compounding Interest

iv) Risk Reduction

v) Liquidity

vi) Invest in small denominations (as small as Rs 500 per month)

vii) Tax Efficiency ( Indexation in Debt funds and Equity Oriented Gain exempt up to Rs 1 lakhs)

Cons: i) Poor Trade executions by fund managers

ii) Market Risk

iii) Cost to Manage Funds (Salary of Fund Managers Come from the amount invested by investors)

Some Top Mutual Funds to be looked on to for investment in different Categories

Fund Name Type Risk 3  years Return 5 years Return Investment period
Mirae Asset   Focused  Fund (Newly Launched) Equity V. High 29.33%    (1

year only)

>5 years
Mirae Asset  Emerging Bluechip Fund Equity V. High 15.65% 21.40% >5 years
Axis Bluechip Fund Equity Moderately High 17.04% 17.28% >5 years
Canara Robeco Bluechip Fund Equity Moderately High 16.27% 17.68% >5 years
SBI Bluechip Fund Equity Moderately High 11.29% 13.99% >5 years
Mirae Asset Hybrid Fund Hybrid Moderately High 11.38% 14.80% >3 years
Canara Robeco Hybrid Fund Hybrid Moderately High 12.91% 14.94% >3 years
Kotak Equity Hybrid Fund Hybrid Moderately High 10.52% 13.82% >3 years
ICICI Floating Interest Fund Debt Fund Low to  Moderate 8.07% 7.91% >2 years
Mirae Asset Tax Saver Fund (Claim  deduction  under Income Tax Act, Section 80C) Equity Moderately High 14.94% 21.51% Lock in of 3 years

*****

Author can be reached at E-mail: [email protected] 

Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

Author Bio

Qualification: CA in Practice
Company: N Gamadia & Co.
Location: Ahmedabad, Gujarat, IN
Member Since: 16 Apr 2018 | Total Posts: 3
Worked as a Senior Manager - Direct Tax with N. Gamadia & Co. till March 2019, and inducted as a partner from 1.4.2019. Have vast experience in the filed of Direct Tax including International Taxation, FEMA and RBI. The Firm N. Gamadia & Co. provides services in all fields such as Audit &am View Full Profile

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