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Majority vote to wind down Franklin Templeton’s afflicted fixed income schemes

In a vote held to decide on the matter of the winding down of Franklin Templeton’s six affected debt schemes, the verdict was in favour of a wind-down. How this crisis has been handled so far reflects positively on the regulator and the markets.

What’s the News?

Majority of Unitholders have voted to wind down Franklin Templeton’s six fixed income schemes.

What does this mean?

Unit Holders in the six debt schemes of Franklin Templeton Mutual Fund have voted overwhelmingly in favour of shutting them down. In the e-voting that took place between December 26 and 29, more than 90% of the unitholders voted in favour of winding up. 

The vote in favour effectively means that the AMC can control the winding-up process of the six fixed-income funds. 

The unitholders’ approval now paves the way for investors to get their money back. The Supreme Court will next meet on January 25, 2021, to give directions on how the funds in the schemes should be paid back to the unitholders. From the day of shutting the funds, Franklin Templeton has had cash inflows of Rs 13,789 crore between Apr 24, 2020, and Jan 15, 2021.

Background

On 23 April 2020, Franklin Templeton had shut down the six debt schemes with assets of nearly Rs 26,000 crore under management, citing redemption pressure and lack of liquidity in the debt market following the covid-induced lockdown. The six schemes are Low Duration Fund, Dynamic Accrual Fund, Credit Risk Fund, Short Term Income Plan, Ultra Short Bond Fund and Income Opportunities Fund.

In what context is this important?

Scripbox had not recommended any Franklin Templeton debt funds. However, for investors with exposure to this scheme, the outcome seems to be an orderly process that will ensure no party is able to get an undue advantage and investors should be able to get something out of it. The active role and timely intervention of the regulator should give investors a sense of confidence in the market.

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