Why did Franklin Templeton shut down its debt funds?...


Franklin Templeton shut down 6 of its debt funds on 23rd April 2020. 1. Franklin India Credit Risk Fund 2. Franklin India Dynamic Accrual Fund 3. Franklin Income Opportunities Fund 4. Franklin India Low Duration Fund 5. Franklin India Short Term Income Plan 6. Franklin Ultra Short Bond Fund This decision was triggered due to the recent liquidity pressure in the credit markets. The Covid-19 pandemic caused a lot of redemption in these risky and short duration funds. In order to meet the redemptions, the AMC had to resort to borrowings and desperate sale of assets. In order to avoid further redemption pressure which could have led to lower NAVs, the fund house decided to close these 6 funds. Closing the funds implies that new investors will not be able to purchase units, existing investors will not be able to redeem units, and all SIP/STP/SWP stand cancelled. The current investors will be paid by the fund as and when proceeds are received against interest or asset sale. Other than credit risk and liquidity risk which we saw in these funds, debt funds also sometimes carry interest rate risk and concentration risk. TO understand these risks and how to mitigate them, investors should watch our video on how to avoid risks in debt funds. https://www.youtube.com/watch?v=2-aF8qw3BRA&t=31s


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