MUMBAI: For investors in Franklin Templeton's funds, being allowed an exit via the stock exchanges is a definite relief as it would prevent money being locked away but on the downside the plan could entail a haircut on deposits.
Going the stock exchange route would mean a faster exit but at depressed prices. Staying put in the fund till maturity or when full refund is made will be a long drawn process but investors could get a better payout due to the expertise of fund manager and advisor in handling underlying assets, said experts.
On 20 May, the Securities and Exchange Board of India (Sebi) made it mandatory for the units of schemes undergoing winding up to be listed on stock exchanges. This would have a direct impact on the six shuttered schemes of Franklin Templeton India with total assets under management of ₹25,856 crore.
In an exchange mechanism, all units in these schemes will be listed, which the unitholders can sell. While this helps the 300,000 stuck investors by providing them an avenue for exit, the quality of underlying paper may play spoilsport in finding buyer for these units.
"It’s not necessary that these units won't find a buyer, they will find a buyer but at perhaps a haircut. Now the call is perhaps purely for the investor to take that would they prefer to stay put in the schemes till maturity/ or full refund is made by Franklin or exit through stock exchange at a haircut. The underlying bonds are not ‘all’ bad and have not defaulted so perhaps a savvy investor or an institutional investor may be interested in buying these units," said Deepak Shenoy, chief executive, at Capitalmind Wealth.
It is also possible that a secondary market evolves for these units in the coming days. The exchanges and the markets regulator are working on modalities of listing these units.
Some experts believe that if one is not in urgent need of money, then the person should consider staying put in the fund till maturity or till Franklin Templeton makes a full refund. Franklin had for over two decades has specialised in these bonds and perhaps is better placed in handling them. They are also being assisted by Kotak Mahindra Bank in portfolio monetisation and liquidation process.
"To sell or not depends on how badly and how soon you need the money. If you can wait it out, you should. Buyers will most likely offer quotes at big discounts to the NAV. Among the 6, Franklin Ultra Short is not what I would call a junk portfolio. It has a decent chance of returning most of your money," said Nithin Sasikumar, co-founder, Investography.
While Kotak Mahindra Bank’s role is directly related to the winding up process, their fee as an independent advisor will not be charged to the funds. Meanwhile, the fund house has reached out to investors to register for the voting process which would authorise trustees to begin asset monetisation. For it to go through, at least 50% of unit holders need to approve the plan.