The Franklin Templeton Funds Saga continues
On 28th April 2020, Franklin Templeton sold some bonds issued by ICICI Bank.
Franklin was holding these bonds in several funds including the Ultra Short Bond Fund — one of the six funds being wound up.
The details of what exactly happened are sketchy at this point as Franklin has not yet released a press statement. So some of the following is speculative. We will update this post as more information comes through.
In the six funds that are being wound-up, Franklin is not supposed to buy or sell any bonds.
The fund trustee, with the advice of Kotak Mahindra Bank, is supposed to take such decisions (once the mutual fund holders vote and give approval for such action).
So, technically, Franklin was not supposed to sell the ICICI bonds held in the Ultra Short Bond Fund.
But the bonds were held in several Franklin funds. And the ones held in the Ultra Short Bond Fund were “accidentally” sold along with the bonds held in the other Franklin funds.
About the bonds
The Ultra Short Bond Fund held 70 bonds, each with a maturity value of Rs 10 lakh.
In the ordinary course of things, these bonds would have matured in 2022. And at that time the fund would have received Rs 7 crore.
[Technically, these bonds are “perpetual” in name with a final maturity date on 31st December 2099. But with a feature under which they would have most likely been redeemed in 2022.]
When these bonds were sold on 28th April 2020, the fund received Rs 6.81 crore for them.
What does this mean for the investors
According to the story, Franklin has promised to make sure the investors are compensated for the “difference in value”. As the story does not elaborate on this “difference”, we believe that Franklin will make up for the Rs 19 lakh loss — the difference between the maturity value of Rs 7 crore and the received sale value of Rs 6.81 crore — to the investors.
All said and done, this is a positive, though tiny, development for the investors. Due to the lockout, the investors are waiting for all the bonds in the portfolio to redeem to get their investment back. Due to this sale, a small part of the investment has come back sooner than expected.
Having said that, Franklin should have been more careful. Given the state of affairs, no one can afford any missteps even if they lead to positive outcomes.
We expect Franklin will put out details of this accidental sale and we will update this post.
Stay tuned!
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