Franklin Templeton debt fund crisis: Will investors get any money?

What has happened?

On Thursday, Franklin Templeton Mutual fund, in an unprecedented move, announced winding down of six of its debt funds. These schemes had assets of Rs 30,854 crore on March 31, 2020, which fell to Rs 25,856 crore by April 22, down 16 per cent after the fund house borrowed to meet redemption pressure.

Which are those schemes? 

• Franklin Low Duration 
• Franklin Dynamic Accrual 
• Franklin Credit Risk Fund 
• Franklin Short Term Income 
• Franklin Ultra Short Bond 
• Franklin Income Opportunities Fund

What does it mean? 

These schemes are shutting down, and will not exist in the future. As a result, the fund house has declared that there will not allow any further transactions in them – no fresh purchases and no redemptions

Will investors get any money? 

It will work like, say six entire schemes are being side-pocketed. So, the day they earn any interest or collect from maturity of their holdings, the money will be distributed among all investors. The overall process could take anywhere between six months to one year, depending on the maturity of the underlying papers. FT will declare net asset values of these schemes on a daily basis.

Will there be any cost involved? 

No, the fund house will not charge you any expense ratio. But there could a minor operational expenses.

What will be the tax implication? 

Payments will be treated as redemption of units. If total duration of investment at the time of payout is less than three years, capital gains will be taxed at the investor’s applicable tax rate. If it exceeds three years, capital gains will be taxed at 20 per cent with indexation.