Looks like no side pocketing, since there is no official default by Vodafone yet. Franklin has just downgraded the bonds internally.
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yeah
I talked to them, and they have not segregated the fund yet.
When it comes to debt fund look for 3 star and not 5 star. Unlike equity funds debt can’t generate much higher returns without risking more. Franklin holdings credit quality was not top notch hence they were getting better returns until now. Hence the 5 star rating. Always look for 3 star in debt and not 5 star. My 2 cents.
I am also an investor in Franklin Templeton Debt Fund (Ultra Short bond), and I have significant investment in Franklin’s debt funds. Franklin has a good reputation and their funds are well managed with good returns, but in the case of their investment in Vodafone, Franklin Templeton has acted against the interests of their existing investors, and the reasons for this are
The investment in Vodafone by Franklin Templeton is marked down to Zero even though Franklin Templeton has requisite collateral matching their investment in Vodafone. There is value for the collateral and no way this investment should have been marked to Zero causing a loss to existing investors
By not creating a side pocketing (this is the norm for all MF’s now) and keeping investment in the fund open to the tune of Rs 2 Lakhs per person per day for new investors, Franklin Templeton is favouring new investors and doing grave injustice to existing investors. New investors that will invest in the fund will enjoy superior returns when some value of the investment in Vodafone is realised by Franklin Templeton whereas existing investors will be at loss
What should existing investors iN Franklin Templeton do?
- Do not sell your holdings in the Franklin Templeton debt funds, if possible, invest more. This is because the damage is already done, from here the nAV will only go up and not down
- Write to the senior management (VP & above, incl Fund Manager) asking them for their feedback on the value of Vodafone collateral and reasons for not side pocketing. I have written to their President and other senior management
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I also have a significant exposure to FT Ultra Short Term Bond Fund. I do not understand the dynamics of the bonds. However I am immensely benefited from some of the posts here. Thanks esp. to Mr. Bhuvanesh and Mr Kishnan. My last one and half years returns are lowered terribly. I am worried about the principle amount and therefore I have couple of questions
a) If I redeem all my holding, would FT pay me back the current holding? Or would they default on that?
b) Why would anybody invest in FT now since they have money locked with Vodafone Idea?
A side pocket can only be created if there’s a rating downgrade below investment grade. Vodafone debt is still rated as BBB-. Unless they are rated Junk, a side pocket cannot be created.
Unfortunately, there’s no easy answer here. If you exit now, you’ll lose out if the situation is resolved and Vodafone makes good on its obligations.
It’s wise to always think back as to why you invested in the fund(s) in the first place and see if that holds good. Chasing returns in debt funds is always a bad idea. Hight returns are possible only with high-risk.
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No. Since there is no side-pocket, assuming that the Vodafone situation is resolved you get nothing. Will it be resolved? Who knows.
Risk is a part of any investment, period.
How much yield were they having before?
Lesson here is never put all eggs in one basket , whatever can happen tomorrow , even nifty can fall for next 5 years or stay flat forever … just like shanghai stock exchange index.
@vishnux I always following buffet strategy , there is nothing to worry about stock market , you mention wrongly , its not shangai its nikkai , thats a diffrent story , i always know these things, , when ever i will create portfolio i will buy cash flow business only thats is buffet choosing in his strategy , its will a recission proof , you dont know about that to create recission proof portfolio how to create and manage, then you want to fear for all thing , you will not be successful in stock market , read the book of INTELLIGENT INVESTOR book , you will come to know every thing ,
ok thanks , will read it 
Also I mentioned shanghai stock exchange index only from 2009 to now its flat
never compare the index in short term , index are zipped , its will give very slow movement only , i am investing in index sip , its not for 5 or 10 its forever think like that, buffet explain to one tv channel , how much is the holding time of stock are index , buffet reply is FOREVER , Use the word investing is forever then only you will be rich person , how you can make 30 % in stock market investing every thing explained in INTELIGENT INVESTOR book
Hi
Is it ok for a 5 star rated moderate low risk debt fund made for fixed income to keep “BBB-” rated fund (lowest investable rated script) with a exposure of 3.xx% - 4.xx% of total holdings ?
And
fund house was waiting in line for miracles to happen.
On this very post there is a letter from Franklin india telling all the story about VIL and its Debt pile, interests, penalties ets. Then why it was holding VIL DEBT SCRIPT on first place?
If im not wrong there is a category for risky debt funds i.e. Credit Risk. (Plz correct me if i am )
Why would investor(s) would choose moderate low risk ?
I believe most of the papers held by the scheme were supposed to mature in the first half of the year - FT might not have expected the position to deteriorate so rapidly. And when it did deteriorate, all potential buyers would have already fled the market (assuming there were been any to begin with).
End of the day, as usual, investors have been left holding the can.
But the developments building in VIL was never happened overnight? Its a good case if im holding to credit risk profile with max risk . What is the point of low risk profile high rated bonds ? Is FT fund house a newcomer ! No ?
Dude, star ratings are useless!! They are purely based on past returns, meaning higher returns = higher starts. And in debt, higher returns can come only with higher risk. So the riskiest funds will always have 5 stars.
True, the end was coming. However, VIL’s strength was derived from its promoters - Birlas and Voda and both of them subscribed to the humongous rights issue - a sign of financial and strategic commitment. It is only when the SC judgement went against operators resulting in the company becoming absolutely unviable did the promoters talk about shutting shop, making additional fund raising an impossibility.
It is easy to blame the fund managers but the fact is they were getting approx 9% IRRs - clearly, some risks were taken. And investors were aware of this. Portfolio is open to anyone who puts in the slightest effort. Investors and fund managers took the risk and it did not play out.
Seriously ! i thought these ratings are based on the best/worsted rated funds in the portfolio? Are you sure ?