Redemption pressure and lack of liquidity in bond markets due to COVID-19 pandemic have forced Franklin Templeton to wind up its six mutual fund debt schemes.
This is for the first time a fund house decides to close existing mutual fund schemes owing to the coronavirus crisis.
The Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund have been shut by the firm.
“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 lockdown of the Indian economy which was necessary to address the same,” Franklin Templeton MF said in a statement.
“At the same time, mutual funds, especially in the fixed income segment, are facing continuous and heightened redemptions.”
According to the company, winding up was 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.
Market participants are concerned that the current situation may also impact other debt schemes.
Indian stock markets regulator Securities and Exchange Board of India (Sebi) eased the valuation policies for debt mutual funds and asked them not to term a paper as default if the delay in payment of interest or extension in maturity is mainly due to coronavirus pandemic related lockdown.