New Delhi: In a massive setback to investors who have parked money in debt funds schemes of Franklin Templeton Mutual Fund, the fund house has announced winding up of six of its credit funds due to severe liquidity crunch amid the Covid-19 crisis.

What has happened?

In an unusual move, Franklin Templeton Mutual Fund has decided to shut six debt mutual funds because liquidity in the bond market has dried up on account of the Covid-19 crisis. Yields of debt securities have risen sharply and that has materially diminished the abilities of companies to service their debt.

The statement from the company noted that the Trustees of Franklin Templeton Mutual Fund in India, after careful analysis are of "the considered opinion that an event has occurred, which requires these schemes to be wound up and that this is the only viable option to preserve value for unitholders and to enable an orderly and equitable exit for all investors in these unprecedented circumstances".

What are those six schemes?

The debt funds which will be shut include Franklin India Low Duration Fund, Ultra Short Bond Fund, Short Term Income Plan, Credit Risk Fund, Dynamic Accrual Fund, Income Opportunities Fund.

Why only these schemes?

It is because these schemes are said to fall under the high-risk, high-return credit risk strategy. In fact, mutual funds, especially in the fixed income segment, are facing continuous and heightened redemptions.

What happens to investors?

If you have invested in any of these schemes you will not be able to withdraw it immediately or on your own. In fact, you need to wait almost as long as the duration of the underlying scheme.

For instance, you are invested in Franklin India Low Duration Fund, the Macaulay duration (weighted average term) to get the cash flows back as of March was 1.2 years.  Now, the investor will have to bear almost wait of around a year and 73 days to redeem the money back from this scheme.

Meanwhile, the fund house will try to liquidate its portfolio and the proceeds after the discharge of all liabilities and expenses will be paid to the unitholders in proportion to their respective interests in the assets of schemes.

It means you will receive the redemption proceeds in a staggered manner periodically. The fund house said that emails are being dispatched to the unit holders regarding the closure of the schemes.

It will publish a Net Asset Value (NAV) for the schemes on a daily basis and inform the investors about the exit strategy later.

As the fund house has stopped subscriptions and redemptions, your systematic investment plans (SIP) will stop automatically. In case you have requested for systematic transfer plans then the money gets stuck and the request to transfer the amount to equity funds will not get processed now.