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Franklin fallout: High risk debt funds detected

Franklin fallout: High risk debt funds detected

Last updated: 10 Dec, 2020 | 08:06 am

Franklin fallout: High risk debt funds detected

  • As you may know, in the context of Franklin Templeton Mutual Fund winding up 6 of its MF schemes, the Supreme Court has allowed the AMC to hold a vote on the winding up process. This vote is expected to take place later this month. 
  • As noted by the AMC as well, an adverse vote (i.e. a vote against the winding up of schemes and thus opening them up for redemptions) may lead to fire-sale of many securities held by these 6 schemes. As of 23rd April, the six schemes had a total AUM of ₹25,856 crore. Redemption pressure leading to a distress sale, will have a significant market impact, putting a severe downward pressure on the price of these securities.  
  • Such sharp drop in price of these securities may in turn lead to drop in the NAVs of other debt mutual fund schemes that have exposure to these securities. The table below shows high risk debt funds which have some allocation (up to 28%) to the securities that Franklin Templeton's wound up schemes have invested into.
  • We have been advising investors to exit their risky holdings. In case of Franklin Tempelton’s shutdown schemes, our engine had triggered alert on 13th June 2019, 30th Oct 2019, 26th Nov 2019, 17th Jan 2020, 23rd March 2020 and 22nd April 2020. These alerts were driven by Franklin’s exposure to troubled entities like ADAG group, Vodafone Idea, Yes Bank and others. Our engines triggered an automated alert each time when there was a high probably to default in underlying holdings. This was way before the schemes shut down on April 24th.

INDmoney Recommendation

We recommend that you should exit before the vote. If vote against the winding up of schemes and thus opening them for redemptions is successful, the above mentioned funds (which have up to 28% of identical holdings) might also come under pressure, thereby impacting the NAV of the fund.

We are a SEBI registered investement advisor