Hello Readers! 

Franklin Templeton Mutual Fund is soon going to complete its 25 years in India, no, not this year, but a year later this year. It was the first mutual fund scheme rolled out by Franklin Templeton Mutual Fund (FT MF) when the fund house set shop in India in 1996.

So basically, Franklin Templeton will be soon celebrating its 25 years in India, however, the celebrations are bound to be muted on account of another anniversary. Yes, the anniversary of its decision of winding up its 6 debt schemes, is approaching near in April 2021.

Recently the e-voting exercise was carried out by the investors of these funds, SC will be announcing the next step for the wind-up process on 1^st February 2021. If all goes well according to the plan, investors may, in a matter of few months, start getting their money in tranches as and when the fund house is able to liquidate its holdings.

However, the fund house would have to go through struggles, to reestablish the fund house’s image and its investor's trust in it. This will become more difficult at a time when AMC’s equity schemes to are struggling with below-average performances.

Here the matter of discussion is, will Franklin Templeton will be able to get out of this mess and regain its lost glory? And if yes then how much would it take?

Franklin’s Profitability Got Hard Hit! 

In the year 2019 Franklin Templeton Mutual Fund was declared as the ninth largest Fund House in terms of Assets and sixth most profitable (net profit of Rs 402.59 crore in the financial year 2018-2019).

Franklin Templeton was popular among the investors because of the debt funds it managed. FT MF had built a profitable business. “These schemes charged high expense ratios, as they delivered better returns. Things were in the favor of Franklin Templeton Mf, till it received a large-scale redemption request on sudden notice. As a result, it took a big decision and announced to wind up the six schemes.

The situation was not only odd for the investors but for FT MF also. It faced a loss of close to Rs 30,853 crore worth of assets or nearly 60 percent of its own debt assets, virtually overnight. These schemes accounted for 36 percent of total assets managed by FT MF. Its profits, subsequently, got impacted.

Reactions Of MF Advisers! 

Deepak Chhabria, the chief executive officer and director at Axiom Financial Services, said that “FT MF will not have a good presence in the debt segment, as these six product categories will not be available at least for the foreseeable future”. This statement clearly shows that there is a very low chance that in the future the Securities and Exchange Board of India will allow FT to re-launch schemes in these categories.

Wind Up Was More Than Closing Of Funds!  

The wind-up decision was only for 6 debt schemes managed by Franklin MF, but its aftereffects were seen on other schemes managed by Franklin Templeton. According to estimates given by Morningstar Investment Advisers India, Franklin India Banking & PSU Debt Fund had net outflows of Rs 164.74, between May and December 2020. Franklin India Corporate Debt Fund had net outflows of Rs 272.68 crore in the same period.

Its equity funds, too, faced collateral damage, as, after the breaking news of wind up of debt schemes, many investors from its equity funds also started withdrawing. Only large-scale redemption didn’t cause the worry, but in the last three years, most of FT MF’s equity schemes have delivered returns below their category averages.

All this has created a big challenge in front of FT MF, to get its equity funds back in the reckoning, as these funds will have to beat other fund houses’ equity schemes which have been consistent outperformers.

Long And Tough Road Ahead!

Until and unless Franklin doesn’t restore its investor's trust and takes steps to control the damage it has undergone, its way is going to be tough. Above all this, what utmost importance is repayment of investors’ money in these six funds? As soon Franklin Templeton clears this issue, it will help it to clarify the reason behind the wind up of schemes to its investors.

Well, the matter is now in the court, and this has depleted their image more. This is genuine that only returning the money back to unitholders is not enough to gain their trust back. It still has to work hard and smart to gain the trust of its investors, back on their schemes. Getting the performance of equity schemes to benchmark-beating levels is another tough task ahead.

Corporate governance expert Shriram Subramanian, founder, InGovern, says that SEBI must penalize FT MF with 2-3 years of asset management fees it had collected in these six schemes over the last few years.

Well, it will be interesting to watch out what steps do SEBI takes against Franklin Templeton MF, but before that investors are all curious to know the next step SC will announce on 1^st February 2021.

For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).