Ultra Short Duration debt funds invest in bonds maturing in 3 to 6 months’ time. They aim to earn slightly better returns than what you can get from a bank account or a short duration fixed deposit. The risk of incurring a loss in these funds is negligible.
Franklin or Any AMC who is investing in Bond fund, they are very much aware about Paper of Company. After all calculations of Risk etc they added particular company bond in his portfolio for get better returns.
What happened with this fund –
In all these AMC Franklin, UTI, Nippon, Aditya Birla etc has taken bond Paper of Vodafone Idea Limited (VIL) according to his decision and calculation of Risk.
Frankln exposures was 4.4% in Ultra Short Term Bond fund. Now Supreme Court has reject the case of VIL. so Franklin has immediate marked down to Zero the Debt Security of VIL. Due to this NAV on 16th Jan 2020 has down.
According to me its very good decision from Franklin for Retail Investors. Scenario, if Franklin not take this action, then all Institutional investor book profit in his portfolio on higher NAV and Retails investors get penalized. Now this is win-win situation for all.
What to do now ?
HOLD 3 months
Franklin has now marked Zero that Does not means they have sold Paper. Bond Paper of Franklin maturity is in July 2020 and Sep 2021. Also VIL has not given any statement that they are not going to pay back of money of Bond Paper, means still value of paper is continue till maturity.
Now 23rd January is last date given by Supreme Court to pay amount of Licence fee, Spectrum charges, if by any chance VIL declare Bankrupt then the current NAV is continue, Else there is no any tension.
In all Cases, I can say that Gov will not going to loose VIL etc but pressure to be on head of VIL to pay such amounts.
This is not happening with Franklin or other AMC is first time, you must heard ABSL Dynamic Bond Fund, ABSL Credit Risk fund. Nippon India Equity Saving Fund etc recently has created Segregated folio.
Franklin has marked Zero but ABSL, Nippon has created segregated folio both are same case. Suppose any one hold investment in above fund and due to any reason, holder quite before maturity of paper and after maturity of paper company get his amount back with maturity value. In that case company refund the complete value to investor Bank Account.
Therefor I will recommend to not exit from this Fund and continue till 3 months more, Franklin has taken this step and cease daily investment upto Rs.200000 only to win-win situation for our retails investor.
To gain maximum Franklin taken pain maximum, As in his folio there are lot of paper is AA- rating. Pls visit www.agindiaonline.com to get all details of paper or you may reach us at my telegram – https://t.me/mfpathshala, reached on whatsapp at 9891423442