Latest Updates: Franklin India Ultra Short Bond Fund Winding up

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While you may have been getting direct updates from Franklin Templeton about the schemes that are under winding up, I would like to summarise the key points for you on the Franklin India Ultra Short Bond Fund and the upcoming vote. 

Post the High Court judgement and subsequent clarifications by Supreme Court, the scheme will now proceed with unit holder e-voting. This will be done in 2 stages.

E-Vote #1

Vote for an orderly winding up of the scheme to ensure proper realisation of investments and return money to investors.

You have the option to vote YES / NO.

Possible outcomes:

If majority of votes are “YES“, then it means that you want the schemes to undergo winding up. No buying or selling is allowed in the scheme. An authorised person will have to ensure that all assets of the scheme are sold out properly and money returned to the investors.

If you vote “NO“, then it means that the scheme has to be opened up just like it was before April 23, 2020. Any investor can buy and sell as usual. Of course, no one is buying. But as you can imagine, there will be a run on the scheme with everyone trying to cash out.

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This could mean that the scheme is forced to sell its investments at throwaway prices and potential losses.

Recommendation:

Our strong recommendation is to vote for the orderly winding up and hence, vote “YES”.

When is the e-voting?

The e-voting is scheduled from Dec 26, 2020 to Dec 28, 2020. Franklin Templeton (FT) will send a detailed email to you on the process of voting.

One vote per unit holder is allowed. This is irrespective of the size of the investment. You have Re 1 or Rs 1 crore invested in the scheme, you get one vote.

You may also read the notice put up on FT’s website.

E-Vote #2

Now, if the scheme receives a YES to winding up with a majority in Vote #1, it will come back for another vote as to who should do the winding up.

This is the vote which was originally scheduled to happen in June 2020 but was delayed due to court stay.

The details of the same will be announced post the completion of E-Vote #1.

Update on the Scheme Operation

As you are already aware, Franklin India Ultra Short Bond Fund is now free of any liabilities. In fact, the scheme has 46% of its AUM as of December 1, 2020 in cash. It means that as soon as the 2 votes are done with a mandate for winding up, the scheme will start returning money to investors. 

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The current monies have come in organically via interest payments and maturity receipts from companies that were given the money. The AMC will also work to sell other holdings that are due for maturity in future, so as to fast track the payments. 

All receipts as and when realised will be returned to all investors in the scheme in the proportion of their holdings.

Suppose, there are 10 investors with 10% holding each in the scheme. The fund sells holdings worth Rs. 10,000 and then all investors will receive Rs. 1000 each. 

If one has 55% holding and the rest 5% each, then the investor with larger holding, will get Rs. 5,500 and the rest will get Rs. 500 each. 

You have witnessed this during the 2 stage payout for the segregated portfolio of Vodafone Idea.

This will be done till all the holdings are sold / matured in the fund. 


This page will be updated regularly with further information.

Should there be any questions about the process or way forward, please do share with us.


Vipin Khandelwal

Vipin Khandelwal

Vipin is a SEBI Registered Investment Adviser. He works with investors to make better decisions and create behaviour alpha.
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