Franklin Templeton Fixed Tenure Fund – Series XIII – Plan A

Franklin Templeton Fixed Tenure Fund – Series XIII – Plan A- a new FMP from Franklin Templeton MF

Franklin Templeton Mutual fund has launched a new fixed maturity plan (FMP)

Franklin Templeton Fixed Tenure Fund Series X111 Plan A FMP-Open and close dates

The open and close dates for this FMP from Franklin Templeton Mutual Fund are 7 December 2009 and 20 January 2010

Maturity of FT Fixed Tenure Fund Series 13 Plan A

The maturity of this Fixed Maturity plan from Franklin Templeton Mutual Fund is 3 years

Entry and exit loads of Franklin Templeton Fixed Tenure Fund Series X111 Plan A

There is no entry load for this FT FMP, the exit load is obviously not applicable since there per new SEBI regulations, the FMP cannot be redeemed before maturity

The FMP is of course tradeable, but dont expect too much liquidity in the market

Recommendation for FT FMP Series 13 Plan A

Not a bad idea to invest in this Franklin Templeton FMP if you have money to spare right now, and avail indexation benefits for 3 years- but if you can wait for some time, you may get FMPs with better yields once the expected interest rate hike happens

Fixed Maturity Plans (FMP) revival in India 2009? A Phoenix rises from the ashes

Fixed Maturity Plans ( FMP ) in India have seen a huge revival in 2009

Fixed Maturity Plans almost led to the dismantling of the entire Indian mutual fund system, as FMP MF managers invested in risky assets such as real estate company (read : Fraud) fixed deposits. The RBI stepped in to clean up the mess with key regulations and Fixed Maturity Plans were supposed be history

Fixed Maturity Plans,however, have risen like a Phoenix from the ashes as the first five months of 2009 have seen investments in new Mutual Fund FMP IPOs of almost 6000 crore!

FMP (Fixed Maturity Plan) mutual Funds have benefited from Government regulations

FMP Fixed Maturity Plan MFs have matured as an investment vehicle in 2009. The Government imposed strict regulations on investments by FMP Mutual Funds have seen greater transparency in Fixed Maturity Plan investments that mature high networth investors (HNI) has appreciated

The quality of investments by Fixed Maturity Plan (FMP) mutual funds has also improved, as the new FMP IPOs of 2009 have desisted from investments in risky assets such as real estate company fixed deposits and NBFC investments

Just the fact that new FMP Fixed Maturity Plans have not invested in the volatile real estate company fixed deposits is enough to give potential FMP investors some confidence in FMPs as an asset class. The recessionary environment had earlier given credence to the belief that FMP Fixed Maturity Plan portfolios were in deep trouble due to the imminent collapse of real estate companies

Liquidity concerns in Fixed Maturity Plans (FMPs) has not impacted popularity of FMPs

RBI had ensured that Fixed Maturity Plans in India could not be sold before maturity and that FMPs could be freely tradeable in the market. However, given the low trades for bonds in the Indian market, FMPs or Fixed Maturity Plans are hardly traded,giving FMPs very low liquidity

However, this low liquidity of FMPs or Fixed Maturity Plans hardly seem to have affected their popularity as every new FMP is being lapped up by the market immediately. HNIs or High Networth Individuals still continue to believe in FMPs ( Fixed Maturity Plans ) as a great investment option for its obvious tax benefits

SEBI ’s Fixed Maturity Plan (FMP) regulations controversial?

Is SEBI ’s solution to the Fixed Maturity Plan problems against the interests of investors?

Sebi has recently announced a slew of regulatory measures to resolve the Fixed Maturity Plan induced Mutual Fund liquidity problem.

Given the run on FMPs and the resulting liquidity pressures on the Mutual Fund industry due to Fixed Maturity Plan scheme withdrawls, SEBI first offered a line of credit to the mutual fund industry

SEBI has also banned early withdrawls in new fixed maturity plans (FMPs). Now, investors in Fixed Maturity Plans cannot withdraw and liquidate their fixed maturity plan funds. So, even if investors want to get out of new FMPs at the cost of the high exit penalties, SEBI has ensured that the investors have almost no option but to wait till the fixed maturity plans finally mature, rather than getting an early redemption

Arguably, SEBI ’s new regulation regarding Fixed Maturity Plan schemes will prevent FMP schemes and MFs from suffering from similar liquidity problems again and going bust, but SEBI has probably delivered a solution that principally benefits Mutual Funds – even those mutual funds with badly managed FMP schemes

SEBI has offered compulsory trading of fixed maturity plans in the stock exchanges as a sop to investors

Given that most of SEBI ’s solutions to the liquidity problems of mutual funds seem to be focused on safeguarding the mutual fund industry rather than the investors, SEBI has introduced one small sop to investors in close-ended instruments such as fixed maturity plans

SEBI ’s sop relates to compulsory trading of close-ended fund securities such as FMPs (fixed maturity plans) on the BSE,NSE stock exchanges. However, FMP investors may find that though the Fixed Maturity Plan schemes can be potentially liquidated in the stock market, these FMP schemes may end up be illiquid and not traded much in the markets

SEBI should realize that if a mutual fund does mismanage its FMP (fixed maturity plan) portfolio, investors in the FMP fund may not find many suckers who are willing to take the bad FMP debt paper from their hands at a reasonable price

In summary, SEBI seems to have made decisions regarding FMPs that are heavily loaded in favor of Mutual funds at the expense of investors

SEBI ’s recent guidelines are great news for Mutual funds , but has SEBI done a good job of their primary role- safeguarding the interests of investors?

Close-ended funds such as FMPs to be listed on exchanges today

Close-Ended Funds SEBI order: Fixed Maturity Plans ( FMPs ) and other close-ended funds have to be listed in BSE/NSE

Mutual Fund managers have to ensure that all close-ended fund schemes such as Fixed Maturity Plan schemes ( FMPs ) have to get their schemes listed on NSE/BSE today

Per SEBI, the only close-ended fund schemes that are excluded from this SEBI dictat are equity linked saving schemes

SEBI is taking the right steps to ensure liquidity problems looming in Mutual Funds due to withdrawls from FMPs (fixed maturity plans) is tackled soon

Liquidity problems in MFs is leading SEBI to take strong decisions regarding close-ended funds such as fixed maturity plans. Transparency and tradeability have been the key problems with close-ended funds such as FMPs- Sebi is doing the right thing by addressing both these issues.

However, some investors will probably suggest that SEBI is acting rather late and putting these measures earlier could have prevented the panic withdrawls from close-ended funds such as FMPs and the corresponding liquidity scare in the entire Indian mutual fund industry

Compulsory listing of close-ended funds such as FMPs in exchanges and stopping early withdrawls from fixed maturity plans is a good idea

SEBI has also ensured that early withdrawls from close-ended funds such as FMPs is a thing of the past (with or without minor exit load penalties). This will further ease the liquidity scare in the mutual fund industry

ICICI Prudential MF FMPs given high AAAF ratings by Crisil

ICICI Prudential MF FMPs have been given a superior AAAF rating by Crisil

Crisil , the credit rating agency has given a high rating to ICICI Prudential Mutual Fund’s FMPs. This fantastic rating for 35 of ICICI Prudential Mutual Fund FMP schemes is a huge boost for ICICI Prudential FMPs and fixed maturity plan schemes in general

The high rating for ICICI Prudential Mutual Fund’s FMPs indicates that the “credit risk” for these fixed maturity plans is limited

Recently, fingers have been pointed at FMPs for investing their assets in risky debt portfolios, including real estate companies and NBFCs. It looks like ICICI Prudential Mutual Fund’s FMP managers deserve a pat on the back for being conservative in their debt portfolios, leading to a lower credit risk

ICICI Prudential MF FMPs also score high in transparency

By publishing a regular fact sheet indicating their portfolios, ICICI Prudential MF FMPs have also demonstrated a high degree of commitment to transparency in their FMP portfolio investments

Crisil giving ICICI Prudential Mutual Fund a high rating for it FMPs is a short in the arm for the reputation of ICICI Prudential as a mutual fund house

FMP schemes from mutual fund houses have come under great scrutiny in the recent past and allegations of poor portfolio allocation and exposure to credit risk have been made against mutual fund houses in general

In this context, by giving ICICI Prudential FMPs a high rating, for over 35 FMPs, Crisil seems to be suggesting that ICICI Prudential is one of the better managed mutual funds with enough checks and balances in place

Corporates now like FMPs of less than 3-6 months duration

Short Term FMPs are now getting more popular than longer term FMPs among corporates

Corporates are now preferring to invest in short term FMPs, showing a marked disinclination to invest in longer term fixed maturity plans

Corporates are playing it safe by investing in FMPs with shorter durations of typically less than 3 months

FMPs are still an important part of the Indian corporates’ investment plans

Recent fears about Fixed Maturity Plans have not dimmed the preference of corporates to invest in FMPs possibly drawn by the superior tax benefits of FMPs compared to FDs

However, corporates are now more careful about longer term FMPs , given the recent liquidity scare that mutual funds faced in October this year

Possibly, the easing of liquidity in November has led to corporates continuing their investments in FMPs

FMPs , at least of the shorter term duration, are the flavour of the month, probably due to the easing of liquidity in Mutual Funds and a gradual return of confidence to at least the FMPs of the better managed mutual funds

In summary, FMPs are back in the short term investment portfolio of corporates

“90% of FMP assets were rated AAA or A1+”

Surendra Bhave,SEBI Chairman, makes positive statement about FMPs (fixed maturity plans)

Asked a question about FMPs, and the possible risks and fears of FMP investors, Surendra Bhave,SEBI Chairman, suggested that asset quality of most fixed maturity plans were good, since 90% of FMP assets were rated AAA or A1+

The risks of FMP schemes now seem limited to liquidity concerns due to massive withdrawls from certain FMP schemes by HNIs

SB Bhave, SEBI Chairman, however, cautioned investors that any mutual fund investment had a risk element

SB Bhave, reminded investors that people who wanted to play safe and avoid risk should invest in Fixed Deposits of banks and shouldnt even be looking at equity or mutual funds which carried a risk

Reading between the lines, FMPs seem to be a better footing now , with even the liquidity problem easing in

FMP and mutual fund investors should a little easier from SB Bhave’s statement- it suggests that any problems due to poor fixed maturity plan asset quality should now be limited to select mutual fund houses that were not careful in allocating FMP portfolios

Of course, investors may be worried if “their” Fixed maturity plan scheme is one of those FMPs with bad portfolio allocations

Those investors who are still worried about their FMP investments are better off reading mutual fund fact sheets that detail the Fixed Maturity Plan portfolios that the mutual fund has invested in

High FMP redemptions by corporates leads to erosion in MF assets

FMP assets of select Mutual Fund houses are being redeemed in a massive way by corporates

Some FMP funds are currently facing a huge redemption of assets. The redemption of FMPs even at the cost of the penalties for early redemptions of around 2-3% has led to some FMP funds becoming almost illiquid

FMP redemptions : The key reasons for investors closing out fixed maturity plans before their maturity

Select Fixed Maturity Plans have seen redemptions due to the following key reasons

• The current liquidity crunch is seeing corporates withdraw their FMP holding even at the cost of the high penalties for early withdrawl of FMPs (often the penalties range from 1-2%)
• Investors in Fixed Maturity Plans have panicked on rumors that certain Mutual Fund houses have invested FMP assets in risky corporate debt in sectors such as real estate. Since many industry watchers expect the real estate industry to tank, in the midst of the current recession, investments in real estate debt by FMPs could be eroded by corporate debt defaults

FMPs have been the mainstay of some Mutual fund houses and the redemption of FMPs could lead to huge crisis in some Mutual Funds and possible distress sales

In recent times, Mutual Funds have been depending on FMPs to increase their asset base. Some small Mutual Fund houses even went overboard, by depending almost wholly on Fixed Maturity Plans for their assets

As a result of the recent spate of FMP redemptions, some small mutual funds which have non-diversified assets, could face a liquidity crisis and could also go in for distress sales of assets ,which could at times even include the entire Mutual fund House

In summary, most Mutual Funds may not have issues due to the recent spate of FMP redemptions but some select Mutual Funds could be in trouble