Franklin update: 6 debt schemes collect Rs 112 cr from July 1-15; borrowing levels decline

A total of Rs 3387 cr has come since April 24 as cash flows in the six yield-oriented funds under winding-up;

Kumar Shankar Roy Jul 20, 2020

mutual fund axis long term elssThanks to inflows from coupons and maturities, the six schemes proposed to be shut down by Franklin Templeton MF received Rs 112 crore during the period June 30 to July 15. The Rs 112 crore can be broken up into Rs 75 crore maturity receipt from PNB Housing Finance and the rest Rs 37 crore is in the form of coupons from various issuers. This takes the total cash flows received in the 6 schemes to Rs 3,387 crore since April 24.

Franklin India Ultra Short Bond Fund (FIUBF) & Franklin India Dynamic Accrual Fund (FIDA) are cash positive after repaying their outstanding borrowings. As of 15 July 2020, FIUBF has 14% and FIDA has 4% of their respective AUM available to distribute to unitholders subject to a successful unitholder vote. Also, borrowing levels in the other funds continue to decline with Franklin India Low Duration Fund (FILDF) and Franklin India Credit Risk Fund (FICRF) having an outstanding borrowing of sub-10% of their AUM.

However, the e-voting and unitholders’ meet continue to remain suspended till Franklin gets further directions from the Karnataka High Court. Certain investors have approached the court to intervene in the Franklin matter. Active monetisation of assets of the schemes and distribution of investment proceeds to unitholders will be possible only after successful e-voting.

Franklin debt funds maturity

Let us now take a look at fund-specific details.

1. Franklin India Ultra Short Bond Fund

Franklin India Ultra Short Bond Fund is one of two funds with a cash-positive status. Between June 30 and July 15, a total of Rs 75 crore was realized by the ultra-short duration fund on account of maturity receipt from PNB Housing Finance.

The fund had 1 segregated portfolio. Post the creation of the segregated portfolio i.e. 8.25% Vodafone Idea Ltd 10JUL20 – Segregated Portfolio 1 on January 24, 2020, the annual coupon due and the full principal due along with the interest was received by the segregated portfolio on June 12, 2020 and July 10, 2020 respectively. With these receipts, the segregated portfolio completed full recovery on July 10, 2020.

2. Franklin India Low Duration Fund

The outstanding borrowing situation has improved for Franklin India Low Duration Fund with loans as % of assets under management standing at 7% on July 15. This is 1st fund with sub-10% borrowing.

The fund has 2 segregated portfolios containing 8.25% Vodafone Idea Ltd (maturing on 10-Jul-2020) and 10.9% Vodafone Idea Ltd (02-Sep-2023). For the 8.25% Vodafone Idea exposure, the annual coupon due and the full principal due along with the interest was received by the segregated portfolio on June 12, 2020 and July 10, 2020 respectively. With these receipts, that segregated portfolio completed full recovery on July 10, 2020.

Additional Read: Vodafone debt paid back, but Franklin still reeling from its quick decision to mark down telco’s NCDs to zero

3. Franklin India Short Term Income Plan

This is the 2nd biggest debt fund among the six being proposed to be shuttered by the AMC. It also remains one of the highest leveraged schemes in terms of borrowings. As a percentage of AUM, outstanding borrowings are 29% for the fund on July 15. Do note that regulation allows mutual fund schemes to borrow funds up to 20% of the AUM to meet redemption requirements. SEBI usually allows enhanced borrowing limits beyond that. The AMC, as per industry practice, pays the borrowing cost for any borrowings above the 20% limit. AMCs borrow at around MCLR rates. The cost of borrowings by a mutual fund scheme is adjusted against the portfolio yield and if the cost of borrowings exceeds such a yield, then fund houses can use the AMC book to repay additional interest on such borrowing.

The fund had 3 segregated portfolios containing Vodafone Idea Ltd (maturing on 10-Jul-2020), Vodafone Idea Ltd (02-Sep-2023), and Yes Bank Ltd (23-Dec-2021). For the 8.25% Vodafone Idea exposure, the annual coupon due and the full principal due along with the interest was received by the segregated portfolio on June 12, 2020 and July 10, 2020 respectively. With these receipts, that segregated portfolio completed full recovery on July 10, 2020.

Do note this scheme, on the request of Future group, had extended a moratorium with respect to NCDs issued.

4. Franklin India Income Opportunities Fund

Franklin India Income Opportunities Fund remains the highest leveraged scheme in terms of borrowings. As a percentage of AUM, outstanding borrowings are 36% for the fund on July 15, down 100 basis points from 37% on June 30.

The fund had 2 segregated portfolios containing Vodafone Idea Ltd (maturing on 10-Jul-2020) and Vodafone Idea Ltd (02-Sep-2023). For the 8.25% Vodafone Idea exposure, the annual coupon due and the full principal due along with the interest was received by the segregated portfolio on June 12, 2020 and July 10, 2020 respectively. With these receipts, that segregated portfolio completed full recovery on July 10, 2020.

Do note this scheme, on the request of Future group, too had extended a moratorium with respect to NCDs issued.

Additional Read: Franklin’s Santosh Kamath breaks silence; expects Rs 6,000 cr inflows by Sept, plans listing of securities, schemes

5. Franklin India Credit Risk Fund

The Rs 3,431-crore Franklin India Credit Risk Fund has about 9% of AUM as borrowings on July 15 — the 2nd fund with sub-10% borrowing.

The fund had three segregated portfolios containing Vodafone Idea Ltd (maturing on 10-Jul-2020), Vodafone Idea Ltd (02-Sep-2023), and Yes Bank Ltd (23-Dec-2021). For the 8.25% Vodafone Idea exposure, the annual coupon due and the full principal due along with the interest was received by the segregated portfolio on June 12, 2020 and July 10, 2020 respectively. With these receipts, that segregated portfolio completed full recovery on July 10, 2020.

Do note this scheme, on the request of Future group, too had extended a moratorium with respect to NCDs issued.

6. Franklin India Dynamic Accrual Fund

Franklin India Dynamic Accrual Fund is the only 2nd fund that has no outstanding borrowings. A cash-positive fund can immediately return some money if allowed.

The fund had three segregated portfolios containing Vodafone Idea Ltd (maturing on 10-Jul-2020), Vodafone Idea Ltd (02-Sep-2023), and Yes Bank Ltd (23-Dec-2021). For the 8.25% Vodafone Idea exposure, the annual coupon due and the full principal due along with the interest was received by the segregated portfolio on June 12, 2020 and July 10, 2020 respectively. With these receipts, that segregated portfolio completed full recovery on July 10, 2020.

Do note, this scheme, on the request of Future group, has extended a moratorium with respect to NCDs issued.


Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.

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