In the financial markets, it's common to redeem one's investments but what happens when financial players are forced to take unpopular measures for the sake of their investors? The investors lose confidence and the company is not considered a 'safe bet' anymore.
Franklin Templeton India's proposed evoting to decide on the closure and redemption of monies for the 6 debt fund schemes is just that - part of confidence building measures through transparency in proceedings and open communication.
As part of a series of conversations, last week, we had an outreach programme where Sanjay Sapre, President of Franklin Templeton India addressed bloggers, vloggers and community financial experts in an interactive Q & S session. Here are the salient features of the conversation.
The Electronic Voting
Unitholders of Franklin Templeton Mutual Fund’s 6 frozen fixed income schemes will have a choice to vote on whether to give their consent for winding up the schemes, which had assets under management worth Rs 25,861 crore as of November. This electronic voting would be between Dec 26 and Dec 28, 2020. It is important to understand that if the unitholders have a majority vote of 'No', this can mean that the schemes will be re-opened and they will be free to sell their units.
Yes or No: What do these choices mean to the investors
As a unitholder, you have two choices:
- Vote “Yes” in favour of the orderly winding up – A “Yes” vote will allow Franklin Templeton India to proceed with the next step which is seeking unitholder authorization under Regulation 41. Post this, the Trustee or any other authorized person can proceed with monetization of assets and distribution of monies to Unitholders. The small print: This will also mean that the schemes will not be required to make a distress sale of portfolio securities to fund redemptions.
- Vote “No” against the orderly winding up – A “No” vote will mean the funds will be required to re-open for purchases and redemptions. The small print: The schemes may suffer significant losses due to the need to sell securities at distress prices to fund heightened redemption volumes.
Should the investor vote 'Yes'
A Yes vote would mean an orderly wind up of the six schemes. In normal market conditions, the opportunity to liquidate assets at fair value would only increase with time. It is not preferred that there is a distress sale of securities at a steep discount if a rush for redemptions forces emergency liquidation. This can the possible scenario of a No vote.
It is fortunate that Franklin Templeton India is pulling out all stops to communicate to the stakeholders about the timelines for redemption and the consequence of the voting process either way. It is now in the hands of the investor to make an intelligent decision.