In an email addressed to unitholders, Sapre assured investors that voting for an orderly winding up will not mean a lengthy wait for return of their money. Once the fund house receives a majority “Yes” vote in favour of the orderly winding up of the schemes, the fund house will immediately proceed with a second vote to seek approval of the unitholders as required under regulation 41 of SEBI (Mutual Fund) Regulation 1996 to authorize the Trustee, or any other person, to proceed with the winding up of the schemes. The person authorised would then be able to distribute the cash already available in the schemes and make further payments at regular intervals as the schemes monetize assets and receive cash-flows.
Sapre believes the orderly winding up of the schemes will result in the best possible outcomes. In normal market conditions, the opportunity to liquidate assets at fair value will increase with time. “We seek your consent for the orderly winding up and believe this will result in the best possible outcomes for unitholders under the current circumstances. In normal market conditions, the opportunity to liquidate assets at fair value will increase with time,” said Sanjay Sapre, in the letter.
He appraised investors that from April 24 to November 27, 2020, the schemes under winding up have received over Rs 11,576 crores from maturities, pre-payments, and coupons, of which Rs 2,836 crores in the month of November 2020. Four out of the six schemes are already cash positive. Even though the schemes could not actively monetize the portfolio, the cash available for disbursement as on November 27, 2020 stands at Rs 7,226 crores for these four schemes, subject to fund running expenses.
Individually, Franklin India Low Duration Fund, Franklin India Ultra Short Bond Fund, Franklin India Dynamic Accrual Fund and Franklin India Credit Risk Fund have approx. 48%, 46%, 33% and 14% of their respective AUM in cash as on November 27, 2020. 4. There is good progress in reducing borrowings in the other two funds and the outstanding borrowing in Franklin India Short Term Income Plan stands at approx. Rs 62 crores (1% of AUM) and in Franklin India Income Opportunities Fund, at Rs 305 crores (18% of AUM) as on November 27, 2020.
Sapre reminded investors that the securities held in the funds can be liquidated at fair value, if the schemes are allowed to undertake an orderly process of liquidation. This is preferable to a distress sale of securities (at steep discounts) that would occur if a rush of redemptions forces an emergency liquidation of the securities at prices far below their realizable value under normal market conditions.