NEW DELHI: The Finance Ministry has asked market regulator Securities and Exchange Board of India (Sebi) to look into the issue of stress in Asset Management Companies (AMC) after Franklin Templeton Mutual Fund decided to wind up its six debt schemes. The AMC had cited redemption pressure and lack of liquidity in bond markets due to the Covid-19 pandemic for the closure.
“The ministry has taken note of it. The market regulator is looking into the liquidity issue of mutual funds in general and Franklin Templeton in particular. We will protect the interest of investors,” a senior finance ministry official said.
On Thursday, Franklin Templeton suspended six funds — Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.
“There has been a dramatic and sustained fall in liquidity in certain segments of the corporate bonds market on account of the COVID-19 crisis and the resultant lockdown of the Indian economy which was necessary to address the same. At the same time, mutual funds, especially in the fixed income segment, are facing continuous and heightened redemptions,” Franklin Templeton MF said in a late evening statement on Thursday.
The statement further noted that “an event has occurred, which requires these schemes to be wound up and that this is the only viable option to preserve value for unit holders and to enable an orderly and equitable exit for all investors in these unprecedented circumstances”.
Market participants and investors are concerned that the current situation may also impact other debt schemes.SEBI on Thursday, meanwhile, had eased the valuation policies for debt mutual funds and asked them not to term a paper as default if the delay in payment of interest or extension in maturity is mainly due to coronavirus pandemic related lockdown.