In April 2020, Franklin Templeton India announced the winding up of six debt mutual-fund schemes after, the fund house said, pandemic-era market illiquidity and redemption pressure made it difficult to manage them on ordinary terms. Investor-directed transactions stopped after April 23, 2020. The schemes’ assets were then realized over time, with liabilities and winding-up expenses paid before remaining proceeds were distributed proportionately to unitholders.
What happened at Franklin Templeton?
The decision applied to six schemes, not to all of Franklin Templeton India’s operations:
- Franklin India Ultra Short Bond Fund
- Franklin India Low Duration Fund
- Franklin India Short Term Income Plan
- Franklin India Income Opportunities Fund
- Franklin India Credit Risk Fund
- Franklin India Dynamic Accrual Fund
Franklin Templeton attributed the decision to severe COVID-19-related market illiquidity. In its explanation, rising redemption pressure, mark-to-market losses as yields rose, and falling trading volumes contributed to the pressure on the schemes. That is the fund house’s account of its decision; it should not be taken as a conclusion about every debt fund or the whole Indian mutual-fund market.
What changed for investors after April 23, 2020?
Investor-directed transactions stopped
According to Franklin Templeton’s FAQ, after the April 23, 2020 cut-off, investors could no longer make purchases or redemptions in these schemes. Linked systematic investment plan (SIP), systematic transfer plan (STP), and systematic withdrawal plan (SWP) instructions also stopped.
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Repayments depended on realizing the portfolios
The schemes’ underlying assets were to be sold or otherwise realized over time. This meant investors did not simply receive their holdings back at once on the winding-up date. How quickly money could be returned depended on realizing those assets and settling amounts payable by the schemes.
How were proceeds distributed?
SEBI’s Mutual Funds Regulations, Regulations 39–42, set out the winding-up framework. Regulation 39 lists conditions under which a scheme may be wound up. Under Regulation 40, after notice, the trustee or asset management company ceases scheme business, including creating or cancelling units and issuing or redeeming them. Regulation 41 covers disposal of scheme assets and allocation of the proceeds.
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Regulation 41(2)(b) puts scheme liabilities and winding-up expenses ahead of distributions to investors: proceeds from asset sales are first used to discharge liabilities due under the scheme and make appropriate provision for winding-up expenses. The remaining balance is paid to unitholders in proportion to their interest in the scheme’s assets on the date the winding-up decision was taken. The amount and timing received by an individual therefore depended on that person’s units and the proceeds available for distribution.
How much had been distributed by June 30, 2025?
In its distribution snapshot dated June 30, 2025, Franklin Templeton reported that ₹27,548.21 crore had been distributed across the six schemes, equal to 109.25% of their combined assets under management (AUM) on April 23, 2020. The fund house also reported that there was no cash available in the schemes as of June 30, 2025.
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Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →The scheme-level percentages below are cumulative distributions compared with each scheme’s AUM on April 23, 2020, as reported by Franklin Templeton on June 30, 2025. They are not personal returns and do not mean every investor received the same percentage of their own contribution.
| Scheme | Distributed as a percentage of AUM on April 23, 2020 |
|---|---|
| Franklin India Ultra Short Bond Fund | 108.50% |
| Franklin India Low Duration Fund | 112.49% |
| Franklin India Short Term Income Plan | 107.87% |
| Franklin India Income Opportunities Fund | 108.21% |
| Franklin India Credit Risk Fund | 113.46% |
| Franklin India Dynamic Accrual Fund | 107.17% |
These are the latest located distribution figures in this account and are dated June 30, 2025; they do not establish whether there were later distributions or other developments. Franklin Templeton said a tranche included reversal of certain expenses and distribution commission as directed by the Supreme Court in its August 3, 2022 order. That description is the fund house’s account; it does not summarize the Court’s reasoning.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What does this mean for Indian mutual funds?
The episode illustrates that a debt fund’s ability to meet redemptions on ordinary terms can be affected when market liquidity deteriorates and investors seek to withdraw money. Debt funds are not interchangeable: portfolios can differ in credit quality, liquidity, interest-rate sensitivity (duration), concentration, and redemption terms. The winding up of these six schemes is a case study in those risks, not evidence that all Indian mutual funds have the same exposures or will have the same outcome.
SEBI’s website lists a June 7, 2021 inspection order titled “In the Matter of Inspection of Six Debt Schemes of Franklin Templeton Mutual Fund.” The listing establishes that an order exists and gives its date and title; it is not, by itself, a basis for describing detailed findings or sanctions.
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Could distributions have tax consequences?
Franklin Templeton’s FAQ describes amounts received as redemptions of units. Where a receipt represents a gain, it may be subject to capital-gains tax, depending on factors including the holding period and investor status. This does not determine an individual’s tax bill; investors should seek advice based on their own circumstances and the tax rules applicable to them.
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