Franklin Templeton Mutual Fund has decided to wind up six debt schemes because of redemption pressure and the lack of liquidity in the bond markets amid the Covid-19 pandemic. The schemes have assets under management (AUM) of nearly Rs 30,000 crore.

Besides fears of job losses at the fund house and a domino effect on the schemes of other fund houses, Franklin’s abrupt decision to draw the curtains on the schemes has a message for the RBI in that its measures to bring stability in the financial markets have not yielded any tangible results.

The unprecedented move from India’s ninth largest asset manager came late on Thursday, with the closure of Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.

Franklin will now not allow any fresh purchases or even redemptions, meaning the funds are locked for the existing investors in these schemes.

The investors will only get back their money after the fund house either sells the bonds bought by these schemes or from the interest generated from the holdings.

Credit risk schemes are those debt funds where at least 65 per cent of the corpus is invested in AA or below rated paper. While they generate relatively higher returns, the risk is high, more particularly in the current circumstances where the liquidity in such papers (AA and below) has been hit.

This is the first instance when a fund house is shutting down its schemes because of coronavirus related situation.

“There has been a dramatic and sustained fall in liquidity in certain segments of the corporate bonds market on account of the Covid-19 crisis and the resultant lockdown of the Indian economy which was necessary to address the same. At the same time, mutual funds, especially in the fixed income segment, are facing continuous and heightened redemptions,” Franklin Templeton MF said in a late evening statement on Thursday.

“An event has occurred, which requires these schemes to be wound up and that this is the only viable option to preserve value for unit holders and to enable an orderly and equitable exit for all investors in these unprecedented circumstances,” the fund house said.

At an investor call on Friday, Franklin Templeton Group’s managing director Vivek Kudva said market regulator Sebi was on board with its decision.

“We did have extended engagement with the regulator on this and the regulator is also very co-operative. Sebi has been wonderful, they also saw reason... that the best option would be to wind-up the fund,’’ he observed.

Speaking at the call, Sanjay Sapre, managing director for India operations, said that the development will have no impact on its other schemes which will continue normally.