Decision making processes are usually complicated even for informed and intelligent people.
Add to it the factor of gains and losses and one can imagine how difficult it must be for investors.
Two crucial elements of a decision that serves your interests are relevant information and clearly defining alternatives for oneself.
Cut to one of the recent examples in corporate India: Franklin Templeton and its closure of 6 debt funds in India. I have been talking about it in my recent posts as I follow an unprecedented decision from one of India’s largest financial service providers.
The background story
Franklin Templeton Trustee Services Private Limited voluntarily decided to wind up its suite of six fixed income funds on April 23, 2020. The decision was taken in light of the severe market dislocation and illiquidity caused by the Covid-19 pandemic but it was taken with the objective of safeguarding the interest of their investors.
Franklin Templeton tried to enable orderly exit for investors while giving them maximum returns. An evoting was scheduled along with unitholders meet. However it had to be suspended due to a court order.
What’s happening now
As per Supreme Court ruling, SEBI will appoint an observer to monitor the voting process. The voting results, and the report of the observer will be submitted to the Hon’ble Supreme Court in a sealed envelope.
What does it mean for the Investor
Franklin Templeton India will continue to proceed with next steps to seek unitholder consent for the winding up of the six schemes under regulation 18(15)(c) of SEBI (Mutual Fund) Regulation 1996.
In order to ensure maximum participation, the process of seeking unitholder’ consent will be through an “Electronic Vote” followed by a meeting through video conference.
Details of the voting process
The Portal will remain open for voting from 09:00 a.m. (IST) on December 26, 2020 till 06:00 p.m. (IST) on December 28, 2020. This will be followed by the Unitholders meeting through Video Conference on December 29, 2020. Unitholders who have not voted previously and are attending the Unitholders meet will be allowed to vote during the time of the meeting.
Investors will receive the user id and password from KFin Technologies for the entire process.
What choices do the Investors have
As a unitholder, you have two choices:
• Vote “Yes” in favour of the orderly winding up – A “Yes” vote will allow Franklin Templeton India to proceed with the next step which is seeking unitholder authorization. Post this, the Trustee or any other authorized person can proceed wit monetization of assets and distribution of monies to Unitholders.
This will also mean that the schemes will not be required to make a distress sale of portfolio securities to fund redemptions.
• Vote “No” against the orderly winding up – A “No” vote will mean the funds will be required to re-open for purchases and redemptions. The schemes may suffer significant losses due to the need to sell securities at distress prices to fund heightened redemption volumes.
As I mentioned earlier, decisions are complicated. But here I am doing my part in presenting the facts for an informed decision making An investor has two clear options with the results if she chooses one or the other.