Franklin Templeton investors get an option to exit through stock exchanges

A welcome move by SEBI - provides a liquidity mechanism to stuck investors.

SEBI has tweaked its rules and allowed Franklin Templeton India to list its six shut schemes on the stock exchanges to provide an alternative exit option to 300,000 investors of these schemes. Franklin Templeton had wound up six debt schemes on 23 April with total assets under management (AUM) of 25,856 crore.

The units of the schemes that are in the process of being wound up ‘shall’ be listed on stock exchanges and investors can exit through this mechanism, said Sebi. This process will be followed prospectively for all mutual funds which propose to wind up their schemes under Sebi regulations.

Key points to note –

  • Principally, it’s a welcome move by SEBI – it provides a potential liquidity mechanism for stuck investors. Investors can choose to sell on exchanges or wait for the MF house to liquidate and redeem.
  • Buyers interest though remains to be seen. Interested buyers would mostly be institutions having greater access to information and higher risk aptitude. Obviously, they would expect significantly low price to buy for higher risk that they would assume.
  • Franklin Templeton can not buy or sell these units on the exchange – which is fair in my personal view.
  • Over period, a secondary market could evolve for debt funds as exchanges would hopefully increase the transparency through disclosures.

Overall, I feel that this is a step in the right direction. How it evolves and plays out, remains to be seen !

Previously, we had published a related article on the topic for retail investors. You can refer it here –  Credit Risk Debt Mutual Funds: Basics an investor should keep in mind

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About the author

Nitin Jain

A finance professional with around 20 years of investing experience in Indian markets both on buy and sell side, equity and debt, private and public with some of the best organizations globally including Goldman Sachs, ICICI Group, ICRA and others. He is a All India Silver Medalist CA by qualification.