Franklin Templeton Crisis: FOFs witness Net Asset Values dip over 20%

The net asset values (NAVs) of Franklin Templeton’s fund of funds (FoFs) fell over 20% in a single day as FTIMF (Franklin Templeton India Mutual Fund) announced to shut six of its open-ended debt mutual fund schemes.

The six schemes were:
• Franklin India Credit Risk Fund
• Franklin India Short Term Income Plan
• Franklin India Ultra Short Bond Fund
• Franklin India Income Opportunities Fund
• Franklin India Low Duration Fund
• Franklin India Dynamic Accrual Fund

“Pursuant to the decision to wind up Franklin India Short Term Income Plan and Franklin India Dynamic Accrual Fund, announced on April 23, 2020, the investments by the Fund of Fund Schemes in the above-mentioned underlying schemes that are wound up were illiquid effective April 24, 2020,” a spokesperson for Franklin Templeton MF said.

“Hence, considering the immediate illiquidity of the investment, these funds were fair valued. We are re-working the underlying asset allocation of the fund of fund schemes and will intimate the changes to investors shortly,” he added.

Franklin Life Stage FoF 50s Plus has witnessed the sharpest decline in NAV (25.2%) followed by Franklin Multi-Asset Solution Fund (22%), Franklin Life Stage (17.8%) and Franklin Dynamic Asset Allocation FOF (17%).

Fund of Funds (FoF):

It is a mutual fund scheme or an investment strategy that invests in other schemes of mutual funds, with an objective to create wealth in the long-run. They have varying degree of risks, yet the portfolio manager’s primary aim is to earn the highest yields. The most notable feature of such funds is that they are maintained by highly specialized portfolio managers.

Impact of Coronavirus on Liquidity of Markets:

The COVID-19 pandemic has crippled the liquidity of bond markets. As a result, the fund houses are facing several challenges in liquidating some of their debt securities. India’s growth-inflation dynamics have dramatically changed over the last few weeks.

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