Franklin Templeton debt schemes: What must you vote for?

By Morningstar |  01-06-20 | 

Franklin Templeton abruptly decided to wind up 6 debt funds due to illiquidity pressures:

  • Franklin India Low Duration Fund
  • Franklin India Dynamic Accrual Fund
  • Franklin India Credit Risk Fund
  • Franklin India Short Term Income Plan
  • Franklin India Ultra Short Bond Fund
  • Franklin India Income Opportunities Fund

The fund house was instructed by the Securities and Exchange Board of India, or SEBI, to appoint an independent adviser to assist the trustees in monetising the portfolios of the shuttered schemes. Kotak Mahindra Bank was appointed, given their vast experience in the debt capital market. The bank will provide independent advice and assistance through the entire process, with the aim of monetisation the underlying portfolio at the earliest possible time.

The fund house will now seek unit holders’ approval to close the mentioned debt schemes through e-voting between June 9 and 11, 2020. Each unit holder is entitled to vote only once per scheme that they have invested in, irrespective of the number of units.

The purpose of the vote is to authorise the trustees to take the next steps for disposal of the assets of the scheme and distribution of the proceeds to the unit holders in accordance with regulations. If the trustees do not receive authorisation to proceed with disposal of assets of the scheme, this may delay the process of monetising such assets and distribution of proceeds.

Investors definitely need to choose the Yes option. Or else, the entire process shall get delayed to no one’s advantage.

There shall be two options on how the assets should be monetised -- authorise the trustees assisted by Kotak Mahindra as an independent adviser and supported by the AMC, or authorise Deloitte Touche Tohmatsu India LLP assisted by the AMC with the AMC being advised by Kotak.

If majority of unit holders select Deloitte, the trustee's role will be restricted to distribution of proceeds to unit holders after payment of liabilities and expenses. So it would be logical to go for the first option, as the primary responsibility of the trustees is that the interests of unit holders is protected.
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