Franklin Templeton - Aggressive bets or Liquidity Crunch.?

   Since Covid 19 has already impacted widely, companies are facing the liquidity crunches.Now the top Mutual Fund house Franklin Templeton has closed its 6 debt schemes due to redemption pressure. For an investor, it means that neither fresh buying of units nor selling of existing units can be done.

The massive selling of debt securities led to crash in prices and rise in yields. Investor wealth of around Rs. 30,000 crores are stucked now. Management has assured that money would be paid back as and how the securities are being liquidated and based on the duration of the debt securities issued.

In all the six schemes a common thing came out was that fund has invested in selected companies and also companies whose ratings were lower than BB grade as they offered higher yields. This led to further aggravation of the issue.

The decision to close the scheme has taken to protect value for investors via a managed sale of assets in light of severe market illiquidity caused by pandemic and then payoff the investors. Its rightly said “read scheme related documents carefully before investing”.

 

CA Shubham Chhajed