Franklin Templeton (FT) has told distributors that it was forced to take the extreme step of closing down six of its debt schemes due to a combination of high redemptions, weak inflows and "dislocation in corporate bond markets".

The asset mangement company said that the six schemes were able to meet their redemption obligations across all market conditions and even during the initial phase of the COVID-19 pandemic lockdown amid redemption pressures and increased market illiquidity.

However, the extension of the lockdown heightened redemption volumes and reduced inflows to unsustainable levels, FT said.

It said the schemes even resorted to borrowings within permissible limits in line with market practice to fund redemptions during this time but it would not have been prudent to add more debt to the schemes.

While the respective valuations of these schemes were marked promptly and conservatively so far, continuous redemption pressures and the illiquid corporate bond markets made it difficult to ensure that all investors were treated fairly, FT said.

Further, given the current unprecedented situation, even the committed borrowing lines maintained by the funds were inadequate to meet the demand for sustained borrowing across the schemes, FT said.

FT said it had explored the possibility of suspending redemptions until market conditions stabilize without winding up the schemes.

However, conditions for such a suspension under the current regulatory framework, such as a maximum suspension period of 10 working days (in 90 days) and the requirement to honour redemptions up to Rs 2 lakh per day

per investor, rendered this approach unviable to meet the severe sustained impact of the current crisis, FT said.