Lower grade papers contribute over half of recovery for Franklin Templeton schemes

Lower grade papers contribute over half of recovery for Franklin Templeton schemes

NEW DELHI: Franklin Templeton Mutual Fund said more than half of the fund it has received so far for its six schemes that were shut last year has been from securities rated A, followed by securities rated AA.

Even though A and AA papers fall in the investment grade, they are considered relatively less secure than top grade AAA. In March-April 2020, when pandemic started, some credit rating agencies had said such papers were more likely to default. However, the recovery by Franklin Templeton shows India Inc has come out of the crisis far better than expected,

The mutual fund house said from April 24, 2020 to January 15, 2021, the six schemes under winding up have received Rs 13,789 crore from maturities, pre-payments, and coupons. In the first half of January, the schemes received Rs 669 crore, of which Rs 617 crore was received as pre-payments.

At the time of the announcement to shut schemes, the total AUM of Franklin Templeton’s six schemes stood at around Rs 26,000 crore.

“Much of this cash has been generated from securities that were unlisted, or where Franklin was a majority holder. Most importantly, all of this cash has been received without any secondary market sale (active monetization) of the securities in the six schemes. This points to the fact that the securities held in the funds can be monetised at fair value if given appropriate time under normal market conditions,” said Sanjay Sapre, President, Franklin Templeton Asset Management.

On Monday, the Supreme Court announced the result of the e-voting in which over 96 per cent of unitholders voted in favour of the winding up of the six schemes. Out of these, five schemes are now cash positive.

The five cash positive schemes have Rs 9,190 crore available to return to unitholders as on January 15, subject to fund-running expenses. 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 have 63 per cent, 50 per cent, 41 per cent, 26 per cent and 9 per cent of their respective AUM in cash.

Any decision to disburse funds will be taken after the apex court delivers its order. The next hearing in this matter is scheduled to take place on January 25.

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