Frozen Funds, Angry Investors

Finally, the inside story on why Franklin froze six funds

- Ashutosh Gupta and Sneha Suri

April 23, 2020, was a historic day for Indian financial markets. While we were in the middle of the worst A phase of the first COVID wave, Franklin Templeton shuttered six of its open-end debt funds, locking up over ₹25,000 crore of investors' money. This was the first time that an Indian AMC did so.

The six Franklin yield-oriented schemes affected on the back of a liquidity freeze in the debt markets included the Low Duration Fund, Ultra Short Bond Fund, Short Term Income Plan, Credit Risk Fund, Dynamic Accrual Fund, and Income Opportunities Fund. What followed were allegations, clarifications, court proceedings, regulatory developments, and cash distributions.

Cut to today, SBI Mutual Fund, the court-appointed liquidator of the six funds in question, has returned ₹26,098.19 crores, amounting to 103.50 percent of the AUM as on April 23, 2020.

Two years since the announcement of the winding-up of the funds, we caught up with Sanjay Sapre, President (his term ends in June 2022), and Avinash Satwalekar, President-Designate, Franklin Templeton - India. The gentlemen patiently fielded our unpleasant questions on Franklin's tryst with the world of high-yield credits, the makings of the winding-up decision, and the life after. Here is an account of how things unfolded.

What was the genesis of the high-yield strategy?

Franklin Templeton is widely seen as the pioneer of high-yield strategies in India. In the shadow of Santosh Kamath - the ambassador of the AMC's high-yield strategies - the fund house started betting on the high-yield segment over a decade ago (see chart 'The temptation of yield').