Franklin Templeton closing six of its schemes was not about bad credit but heavy redemptions had made the situation challenging amid the coronavirus crisis, said Ananth Narayan, professor, SPJIMR, adding that he expects the RBI and government to step in to ensure liquidity.
Franklin Templeton Mutual Fund on Thursday announced the closure of its six credit funds due to liquidity issues amid the coronavirus crisis.
The funds that will be shut are Franklin India Low Duration Fund, Ultra Short Bond Fund, Short Term Income Plan, Credit Risk Fund, Dynamic Accrual Fund, Income Opportunities Fund, the company said in a statement.
“I do expect the RBI and maybe the government to step in right now. Fundamentally, the problem is that the liquidity in the secondary market for corporate debt stays limited. Last month in March, the redemptions from the non-liquid, non-overnight funds which is about Rs 7 lakh crore of AUM of mutual funds itself was over Rs 1 lakh crore. In addition, because of the global risk-off, you saw FPI selling bonds as well. So the system is simply not geared towards handling these kind of redemptions at one shot. This is not about insolvency or about bad credit,” Narayan said.
“I think the whole market was a non-AAA space. There has been so much fear that extended lockdown will result in some of these non-AAA companies moving from a liquidity situation to maybe an insolvency situation — that has resulted in a run on the Franklin Templeton ,” added Dhruv Mehta, chairman of Foundation of Independent Financial Advisors.