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Coronavirus impact | Government, RBI seized of Franklin Templeton matter, examining liquidity issues

Date: 25-04-2020
Subject: Coronavirus impact | Government, RBI seized of Franklin Templeton matter, examining liquidity issues
The government is seized of the Franklin Templeton fund closure matter and liquidity issues would be addressed as and when necessary, a senior government official said.

"On the face of it, it looks like one specific fund-related matter, not really reflective of the whole spectrum. But still, the government is seized of the matter. RBI (Reserve Bank of India) is examining the liquidity issue. Adequate steps would be taken as and when necessary," the official told Moneycontrol.

Franklin Templeton India, one of the largest fund houses in the country, said it will shut six debt funds - Franklin India Low Duration Fund (FILDF), Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund, and Franklin India Income Opportunities Fund (FIIOF) -  that carried credit risk. The wind-up of these credit funds was effective from April 23.

“In light of the severe market dislocation and illiquidity caused by the COVID-19 pandemic, this decision has been taken in order to protect value for investors via a managed sale of the portfolio,” Franklin Templeton declared in a statement on April 23.

India’s financial sector is under intense strain, grappling with a crushing liquidity crisis. Due to the uncertainty, investors began to panic and took to redemption, especially in credit risk funds such as the ones run by Franklin Templeton.

To meet redemptions, a fund house typically dips into cash reserves or sells underlying scrips. Even that wasn’t enough, according to Templeton, which forced it to take the decision to wind up the six funds.

Though these were specific papers suffering from lack of liquidity, but there is growing concern that Templeton’s action could impact the trust of investors in other liquid funds even in those ones that are relatively in a better liquidity position.

Experts believe that if the crisis spills over, the lack of trust could result in an exodus of funds to safer assets including bank fixed deposits and gold.

Total assets under management of the six funds are estimated to be around Rs 25,000 crore.

Source:- moneycontrol.com

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