Franklin India Mutual Funds Closed Down 6 of its Debt Schemes

Franklin India Mutual Funds recently decided to close down 6 of its debt schemes in India due to redemption pressures.

About the Closing

Franklin India Mutual Funds closed down 6 of its credit managed yield oriented funds. These schemes had 25,658 crore INR of assets under management. The schemes were facing a high pressure for redemption (the process of withdrawing money back from the investment in mutual funds).

Mutual Funds

Mutual fund is an investment vehicle which pools money from many investors and invests in bonds, stocks, money market instruments and other assets. These funds are operated by professional money managers who allocate the funds in various securities with the view of earning capital gains for the investor.

Bank Borrowings

These 6 debt funds have been resorting to bank borrowing to meet the redemption pressure in the days before their closure. SEBI regulations cap such borrowings to meet liquidity needs for redemption or dividend payments by mutual funds to 20% of their assets. One of the 6 funds had already borrowed 17.7% by end of March. Overall, these funds borrowed over 2,200 crore INR at 8% MCLR rate.