Franklin Ultra Partial Payment From Vodafone Segregated Fund

Yesterday afternoon I was reading in the news that Vodafone Idea has made interest repayments to mutual funds. I was wondering if Franklin will be returning something back to the investors. And as expected, I did receive an email from Franklin yesterday evening. The AMC will be returning 7.58% of units worth of money back to the investors. This is some good news in the ocean of bad news surrounding Franklin. If you don’t want to read the post, you can check out the video at the end of the post.

If you have invested in any other funds of Franklin or even other mutual funds holding Vodafone papers, you must have received, or will receive an email from your AMC. Since I have invested in Franklin Ultra Short-term fund, the rest of the post is all about it. But it applies to any other fund really.

What happened?

If you don’t remember the Franklin Vodafone issue, do read my previous post on the same. The gist of it is that on January 16, 2020, Franklin has marked down Vodafone papers to 0. The reason? A supreme court ruling that requires Vodafone to pay huge licence fees. Franklin marked down the papers in anticipation that the rating for Vodafone will be downgraded to junk. That eventually happened later. The marked down papers were moved into segregated funds. The NAV of segregated funds is set to 0.

If and when Vodafone paid the interest and principle, the AMC would return the money from the segregated funds to investors. Franklin Ultra Short-term segregated fund has Vodafone papers maturing on July 10, 2020. So I was waiting for something to be returned on July 10. But this interest payment is a good thing!

Vodafone maturity in Franklin Ultra Short-term fund

How much will you get?

I can tell you upfront, it will be a tiny amount :). Continue reading if you still want to find out how much you will get back. First check how many units you have in your segregated fund. You can use cams consolidated statement to find out how many units are in segregated funds. Lets say you have 10,000 units. Then based on the email you received find out what percentage of the units are being extinguishing. In the case of Franklin Ultra short-term, it is 7.58%. The number of units that will be extinguishing in this example is 7.58% x 10,000 = 758 units.

Next refer to your email and figure out what the unit price will be. In my case it is Rs. 1.4325 because I am invested in Franklin Ultra Short-term Direct Super Institutional Plan Growth Option. So multiply that number with the number of units. In our example it is 1.4325 x 758 = Rs. 1,085.83. As you can see, it is not much. After this event, the number of units in your segregated portfolio will come down by 7.58% in the case of Franklin Ultra. So in the example, the number of units you will be left with will be 9,242.

Price per unit of Vodafone papers in Franklin Ultra Short-term fund

Payment and Taxation

I am not clear whether the wind-up issue will block the repayment. But if I understand the email, it looks like the payment will be made to the bank. Will update this post if that is not the case. You should expect the amount to be paid by Jun 17, 2020.

I am not very sure about how it will be taxed, but if I had to guess it will be all short-term gains. If you look at the transaction in your cams statement, there is just one on Jan 24, 2020. Since it is less than 3 years, the gains will be short-term in nature. So all the amount that you receive this week and soon after July 10, 2020 will be taxed at your nominal rate. Update July 14, 2020: I figured out the tax. Check my post on tax.

I will update this post if there are any changes or more information. in the meantime check out this video of the same.

Update [June 16, 2020]

I received the payment in my bank account today on June 16, 2020.

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