Mumbai: Franklin Templeton Mutual Fund has urged unitholders to vote in favour of the trustees’ decision to wind up the six debt schemes. This comes in after the Supreme Court ruled on Thursday that the fund house should seek unitholders’ consent to close these schemes.
“We seek your consent for the orderly winding up and believe this will result in the best possible outcomes for unitholders under the current circumstances,” said Sanjay Sapre, President, Franklin Templeton Asset Management in the letter. “In normal market conditions, the opportunity to liquidate assets at fair value will increase with time.”
The fund house had proposed to shut six debt schemes handling ₹26,000 crore of investor money on April 23 as it was struggling to handle redemption pressure due to illiquid securities in the portfolios and crisis in the bond market.
Franklin said unitholders will have two options — Yes or No — in the upcoming voting process.
A ‘Yes’ vote will mean that the six schemes will not be required to make a distress sale of bonds to fund redemptions to unitholders, said the fund house. A ‘No’ vote will mean the funds will have to re-open for purchases and redemptions, which could lead to ‘significant’ losses due to the need to sell securities at distress prices to fund the redemption, it said.
Sapre said the debt securities held in the funds can be liquidated at fair value, if the schemes are allowed to undertake an orderly process of liquidation. “This is preferable to a distress sale of securities that would occur if a rush of redemptions forces an emergency liquidation of the securities at prices far below their realizable value under normal market conditions,” the Franklin letter said.