Winding up of funds does not mean write-off of investor money, says Franklin Templeton India's Sanjay Sapre

Offering some relief to its investors, Franklin Templeton India President Sanjay Sapre on April 27 said that closure of the company's six credit funds in the country does not mean a write-off of its obligations to investors.

In an exclusive interview with CNBC-TV18, Sapre assured that the investors will receive money over a period of time.

Calling it an "extremely" difficult decision, Sapre said that reduced liquidity in the bond market in March and April forced the fund house to take the drastic step.

"March and April saw a significant reduction in liquidity in the bond market. The company witnessed unprecedented illiquidity for securities rated below AAA," Sapre said.

"We were able to manage the liquidity needs of the funds till mid-March and only started facing liquidity challenges after that."

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He added that the schemes could not generate cash-to-fund redemptions after the lockdown was extended as it drastically reduced the risk appetite of the market.

Sapre said that given the size of its Indian business, it was not possible for the fund house to provide liquidity support.

Sapre also said that the fund house has not wound up its "Fund of Funds" scheme and the rumours relating to it are incorrect. All other funds will remain open for subscription and redemption, he added.

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Mutual fund houses reached out to the Reserve Bank of India (RBI) and market regulator Securities and Exchange Board of India over the weekend after concerns emerged over the closing down of Franklin Templeton's funds last week, sources told CNBC-TV18.

Franklin Templeton Mutual Fund on April 23 said it was closing down six credit funds due to liquidity issues amid the coronavirus crisis, leading to fears of redemptions among the market players.

The funds that will be shut are Franklin India Low Duration Fund, Ultra Short Bond Fund, Short Term Income Plan, Credit Risk Fund, Dynamic Accrual Fund, Income Opportunities Fund.