What should you do if you are an investor or an IFA?

Well if you have your money in the 6 schemes of FT are (remember it has Rs. 28,000 crores in assets) so many of us would be investors.

I have given an indicator in my previous article – I do expect FT to sort it out much faster than the 5 year outer limit that I have said. I will do an analysis of one fund scheme and tell you about it.

Should I remove my money from Floating rate and Banking and PSU bond fund?

No. I do think that the PSU funds are good places to keep your money. However, do realize that I can give advice but YOU run the risk. I have my money in both these funds, and IF I remove it is because i can’t remove from Ultra short bond fund.

Will I get my money?

Yes of course. How much and what time that is the question.

When will I get my money?

Franklin Templeton AMC will publish a Net Asset Value (NAV) for the schemes on a daily basis. They will have a liquidation strategy – they will collect interest from the parties, and collect money on redemption of the securities. They may also try to sell some of the assets – but may not sell on a distress basis. A rough measure of time can be taken by looking at the average maturity of the paper held in these schemes. The average maturity of Franklin Ultra Short Bond Fund is 0.62 years or about 7.5 months. For Franklin Low Duration, Franklin Short Term Income, Franklin Dynamic Accrual, Franklin Income Opportunities and Franklin Credit Risk that average maturities are 1.46, 2.75, 4.28, 2.55 and 3.08 years – as on 31st March, 2020.

However, these are average maturities. So if FUSBF – ultra short – and they have one scheme which is maturing in July 2024 (24 months), you have to assume that it will take 23 months. However, if the JM paper can be taken off the books by some other person, the money  The average is 7.5 months means a lot of your money will come back to you in 5-7 months, but the remaining portion will come to you in the 24th month. However, it is possible that the long instrument -24 months – is a good company who is eligible to get money at 8% pa from other banks. He will take that and retire his higher cost debt. Say RBI creates a window for government paper buy back or something like that then some of the 2028/9 paper will get bought back. The total portfolio is good and as interest rates go down a good portfolio should be able to give you good returns. However seeing the yields at which this money has been lent, there is a good chance that you will take a 10-15% hair cut. I hope it does not get worse than that. Hair cut means if you have to get Rs. 20L expect to get 17L (20L MINUS 15%).

What happens to the ‘segregated’ portfolio?

FT has a part of the portfolio that has been valued at zero. This you will get as and when that they realiize the money. One way of looking at your portfolio is as if the whole portfolio is ‘segeregated’.

I have money in other equity funds, should I redeem them?

No. These events have nothing to do with the equity funds, so you could stay on in the equity funds.

I have money in Floating Rate fund and PSU and Banking fund. Should I remove them too?

Actually No. If you do not need money you should not remove money from Banking and PSU fund – it has a good yield and a government guarantee. The Floating Rate fund is like a liquid fund and has very little risk.

I was doing a STP from Ultra short bond fund and my father was doing a SWP from the ultra short bond fund. Now what happens?

Well your father will get some money on a regular basis – but that may not be on the day he wants, and the amount may not be the amount that he wants. So if say 20% of the money is recoverd in June, your dad will get Rs. 200,000. However he may not get anything after that till August. So you may have to manage his portfolio for some time.

Will FT shut down in India?

May not. However it is an expensive top heavy (expensive) fund house. That of course should not bother you – the salary is paid by the AMC – and that has nothing to do with your fund performance!