The net asset value of Franklin India Income Opportunities Fund fell by 4.73% on Friday. The NAV of Franklin India Credit Risk Fund also saw a dip of 2.28%, Franklin India Short Term Income Plan’s NAV dropped by 1.75% and Franklin India Dynamic Accrual dropped saw a fall of of 1.343%.
“Due to default in payment, the securities of FICL and NDIL will be valued at zero basis AMFI standard hair cut matrix and interest accrued and due will be fully provided. Securities of RTVPL will continue to be valued at 75% basis recommended valuation,” Franklin Templeton MF said in a note.
The Franklin schemes had an exposure to the NCDs of Rivaaz Trade Ventures Pvt Ltd (RTVPL), Nufuture Digital (India) Ltd (NDIL) and Future Ideas Co Ltd (FICL) which were downgraded by Brickwork ratings on July 29 to NCDs to BWR BB+. The rating downgrade is due to the downgrade in the credit profile of the credit enhancer Future Retail Limited (FRL), on which these companies have significant reliance for its income.
The fund house said that Rivaaz Trade Ventures Pvt Ltd met its payment obligations on July 31. Since the other two entities defaulted, the securities of FICL and NDIL will be valued at zero, based on AMFI standard hair cut matrix and interest accrued and due will be fully provided. The fund house said that the securities of RTVPL will continue to be valued at 75% based on the recommended valuation.
“This is a bad news for sure. A debt mutual fund investor has capital protection on his/her mind always. A 4.7% dip in NAV is huge. And when you can’t pull out your money or do anything, it is worse. I believe this may lead to further fear psychosis in the minds of debt investors. In such situations, debt investors may resport to redeeming from other debt schemes as well, which is not good,” says Babu Krishnamoorthy, Chief Sherpa, FinSherpa Investment Services.