Quant MF irregularities: Should investors stop their SIPs and exit funds? Here’s what experts say

Quant Mutual Fund’s recent probe by the Securities and Exchange Board of India (Sebi) is making its investors a bit edgy.  Quant Mutual Fund, a high-growth asset management company (AMC), is one of the top fund managers with Rs 93,000 crore of assets. It was probed for its alleged front-running activity. Front-running is when an individual or a group, usually an insider or a broker, engages in trading activities based on insider knowledge of forthcoming trades by a mutual fund to make personal securities purchases prior to the fund’s transactions. By engaging in this, the traders can profit from the expected price changes that occur once the fund carries out its trades. This skewed tactic grants the insider an unjust edge, to the detriment of the fund’s investors.

Amid all this, investors are feeling worried about their SIP or investments in the AMC’s funds. Experts feel that investors should not stop their SIPs and said that staying invested can get them desired returns in the future.

“Longer-term investors, including those who have ongoing SIPs/STPs, can continue to hold on to existing investments, as their investment horizon may allow them to weather short-term volatility and benefit from potential recovery,” said Sagar Shinde, VP Research, Fisdom, told the Economic Times.

Supporting the idea, Kirtan Shah, founder of Credence Wealth Advisors LLP, said: “Quant MF funds have enough large cap investments in even small and mid funds of theirs. Both the funds have almost 10% each in Reliance alone. Liquidity is not a problem at all from the redemption perspective if at all. There might be selling in mid & small stocks that Quant holds and expect some underperformance by the funds in the near term. What will happen to the funds in the long run is anybody’s guess. If SEBI finds front running, flows will slow down / redemptions will happen and hence near term underperformance but their process to select stocks have been working well and if the funds deliver returns, investors memory is weak and we all know that.” 

“At the moment we will like to give benefit of the doubt to the Quant and would advise investors to stay put. We do not see any major impact on the performance of the funds. We all know how good they have been in their performance. Massive redemptions across the board should be clearly avoided till absolute clarity is received. Investors should continue their SIP’s in the Quant funds but wait for lump some investments in their schemes till the enquiry is completed. There is no need to panic as we have full confidence in the regulator. We do not foresee any major negative impact on stocks in their various schemes,” said Gaurav Goel, a Sebi registered investment advisor. 

Quant Mutual Fund, founded by Sandeep Tandon, has emerged as one of the rapidly expanding mutual fund entities in the nation. The fund house obtained approval from the Securities and Exchange Board of India (SEBI) to venture into the mutual fund business in the year 2017. Demonstrating remarkable growth, it surpassed assets worth Rs 50,000 crore in January, offering 26 schemes and catering to 54 lakh folios. Notably, Quant Mutual Fund has witnessed substantial advancement in recent times primarily fueled by inflows from retail investors. 

Its Assets Under Management (AUM) soared from Rs 233 crore in March 2020 to an impressive Rs 80,030 crore at present. Tandon boasts a rich experience of over 25 years in the financial services sector. Currently, Tandon plays a pivotal role in overseeing investment decisions concerning 22 schemes within Quant Mutual Fund, steering the organization towards success and growth. 

Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance, said: “Those investing without any professional guidance could still panic and redeem their funds. This will actually turn out to be a good thing for those who stay invested and continue to do so, through SIPs and STPs, as they would get a lower NAV.”

“There have been many such instances in the past. The dealing function of a fund house is particularly vulnerable to such mischief. However, that doesn’t mean that a fund house is deliberately trying to deceive you. For the time being, the best thing to do is to do NOTHING. Wait for SEBI’s investigation process to cook and then make a decision,” Value Research said in a note.

Quant Mutual Fund has experienced significant growth in the past year, with its assets under management increasing by approximately 251% from Rs 23,956 crore in May 2023 to Rs 84,030 crore in May 2024. Specifically, the asset size of Quant Small Cap Fund rose by about 357%, while Quant Mid Cap Fund saw a growth of around 303% during the same period. This substantial increase highlights the growing investor interest and confidence in Quant Mutual Fund’s offerings.

Quant Small Cap Fund has shown impressive performance over the last five years, offering an absolute return of 495%. It is benchmarked against Nifty Smallcap 250 – TRI, which yielded a 250% absolute return in the same period. The scheme currently manages assets worth Rs 21,243 crore as of May 2024, making it the largest fund under Quant Mutual Fund’s management. 

Besides, Quant Mid Cap Fund has also performed well, delivering an absolute return of 348.65% over the past five years compared to its benchmark Nifty Midcap 150 – TRI, which posted a return of 248.02%.

However, some experts feel the front-running in mutual funds is a matter of concern and may drag for some time.

“As the news of Sebi probing Quant MF for front running emerged, we could see some redemption pressure on the fund house level, negatively impacting their Scheme’s returns. There might be more selling pressure in mid- and small stocks and schemes that Quant holds if SEBI finds the front running, and one can expect some underperformance in their funds in the near term. As we advance, we will track NAVs, inflows, outflows, and stock holdings for the upcoming weeks, before  taking a decision on what is to be done. However, we will not be allocating any fresh investment towards the AMC,” said Dilshad Billimoria, a Sebi-registered investment advisor. 

Prime Investor in their note to the investors said that these allegations on Quant AMC may see redemption pressure on the company and a possible drop in the price of portfolio stocks allegedly used for front-running. 

“We are now uniformly issuing an exit call on all the equity and hybrid funds of Quant AMC, whatever be their call earlier,” said Prime Investor in a note to investors.

It added: “For an AMC like Quant, with a good proportion of mid- and small-cap stocks or low float stocks, high redemption pressure can start impacting NAV and cause damage to the remaining investors. While this call may seem rather hurried; however, simple news like this, the actual impact of such front-running notwithstanding, can cause enough damage to sentiment in the AMC and impact redemptions,” the investment advisor said.

The views expressed are of the experts. The recommendations and suggestions do not represent the views of Business Today

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