Why investors should not panic or stop SIP in Quant Mutual Fund after front-running crisis (2024)

The Sebi investigation into suspected front-running in Quant Mutual Fund has investors worried about their SIP or investments. ETMutualFunds reached out to experts to understand what investors should do with their investments. Most experts advocated staying invested rather than redeeming or stopping SIPs.

“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. For investors seeking to liquidate investments in the very near term, it is prudent to de-risk by switching out of pure equity funds managed by the fund house. This strategy can help mitigate the risks associated with potential market reactions and regulatory actions,” says Sagar Shinde, VP Research, Fisdom.

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“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,” said Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance.

The small cap and mid cap mutual fund schemes run by Quant Mutual Fund saw a marginal decline in their NAVs (net asset value) on Monday. The NAV of Quant Small Cap Fund scheme fell by 0.66% even as their benchmarks rose 0.0091%. The NAV of Quant Mid Cap Fund scheme fell by 0.94% even as their benchmarks rose 0.24%.

The one day movement in the NAV of small and mid cap was marginally down. What should you do going ahead?

“We should continue to stay invested in fundamentally good funds and ignore such short-term fluctuations, but still continue to monitor them and take action, only when it is really needed,” said Minocha.

“Investors should closely monitor updates and be prepared to make further adjustments if the situation worsens or if there are significant adverse impacts on the fund’s performance,” recommends Shinde.

Over the last one year, the assets under management of Quant Mutual Fund have surged by around 251% from Rs 23,956 crore in May 2023 to Rs 84,030 crore in May 2024. The asset size of Quant Small Cap Fund and Quant Mid Cap Fund increased by around 357% and 303% respectively in the same period.

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Quant Small Cap Fund offered 495% absolute return in the last five years. The scheme is benchmarked against Nifty Smallcap 250 - TRI which gave 250% absolute return in the same time period. The scheme manages assets of Rs 21,243 crore as of May 2024. This is the largest fund that is managed by Quant Mutual Fund.

In the last five years, Quant Mid Cap Fund delivered an absolute return of 348.65% against 248.02% by its benchmark (Nifty Midcap 150 - TRI).

The funds have been among the top performers over different time periods. Now the question is how this investigation will impact the investments of the investors?

“If Quant Mutual Fund or any of its individuals are found guilty of front-running, they could face severe penalties, including fines, suspension, and potential legal action. However, considering how mutual funds are merely pass-through entities, investor value continues to be held in the securities that the respective funds have invested in. Select stocks with limited float and the fund house’s participation may witness pricing pressure if the fund is forced to sell to meet redemption needs or if other market participants decide to steer clear of these stocks,” said Sagar.

“SEBI has mentioned that they are only investigating. There is no judgement as yet on the front running. Quant's method of investing is very different. They are not based on the fund manager's discretion but follow the quantitative investing method. So, even if fund managers are changed in the future, the impact will be much less as the method of investment will still be based on their algorithm,” said Minocha.

This is not the first instance of front-running in mutual funds. Instances of front-running have occurred in the mutual fund industry, with notable cases involving Axis Mutual Fund and HDFC Mutual Fund. Sebi took action against Axis Mutual Fund by barring the fund's dealer along with 20 other entities. They also impounded wrongful gains amounting to Rs 30.55 crore. Another incident was reported in 2007 involving HDFC Mutual Fund.

“You may recall that a similar instance happened with another large AMC a couple of years back and now that fund house is bouncing back strongly. Those who stay invested are bound to get great returns over a long period. The mutual fund industry is heavily regulated and these are common,” comments Minocha.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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FAQs

Why investors should not panic or stop SIP in Quant Mutual Fund after front-running crisis? ›

Synopsis. Experts advise staying invested in Quant Mutual Fund despite short-term NAV fluctuations and regulatory investigations. Monitoring the situation closely and being prepared for potential impacts is recommended for long-term investment goals.

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Should I stop my SIP in Quant mutual fund? ›

However, one should not stop their SIPs. Investors with a longer-term horizon, including those with ongoing SIPs or Systematic Transfer Plans (STPs), are encouraged to continue holding their investments.

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How does front-running affect investors in quant mutual funds? ›

Front-running erodes investor trust in the fund house, which can lead to redemptions, affecting the fund's Net Asset Value (NAV), analysts say. The investigation itself can create uncertainty, causing investors to hold off on further investments or even redeem existing ones until the situation is resolved.

Why are people not investing in quant mutual funds? ›

Most quant funds in India have a track record of only 3-4 years, which is too short to reliably judge their execution capabilities. Within this limited time frame, significant variance can be observed. Despite a few exceptions, most funds have struggled to outperform the market.

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Is quant safe for SIP? ›

Financial advisory platform Morningstar has said panicking and selling investments or stopping Systematic Investment Plans (SIPs) is not recommended at this stage. For those already invested in Quant funds, Morningstar suggests maintaining their current holdings.

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Will Quant mutual fund recover? ›

Over the last one year, the assets under management of Quant Mutual Fund have surged by around 251% from Rs 23,956 crore in May 2023 to Rs 84,030 crore in May 2024. The asset size of Quant Small Cap Fund and Quant Mid Cap Fund increased by around 357% and 303% respectively in the same period.

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Should I take out money from Quant mutual fund? ›

Those investing without any professional guidance could still panic and redeem their funds,” said Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance. "At the moment, we would like to give the benefit of the doubt to the Quant and would advise investors to stay put.

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What is the problem with quant funds? ›

Quant Cons

And what are the drawbacks of quant funds? One negative is that with the increased usage of artificial intelligence, different quantitative funds may inevitably start making the same decisions in unison, which could bring about contagion issues for financial markets.

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Why is SEBI investigating quant? ›

SEBI is investigating asset manager Quant Mutual Fund because apparently someone at the fund is front-running its trades. [1] SEBI probably found a pattern of shady buying/selling on its monitoring systems and is now looking for concrete evidence.

What is the allegation on quant mutual fund? ›

In the Quant Mutual Fund case, SEBI's surveillance indicated possible front-running by entities with insider knowledge of Quant's trades. It is suspected that Quant executives with information about the size and timing of orders may have leaked this to beneficiaries.

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Why is Quant not accepting SIP? ›

Online mutual fund (MF) distribution platform ET Money on Friday said it had suspended fresh lumpsum investments and SIP registration in Quant MF schemes owing to pending 'business and operational integration' with the fund house. ET Money will, however, allow existing SIPs to continue.

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Is SEBI raiding the quant Mutual Fund? ›

The Quant Mutual Fund is under Sebi's investigation for a probable front-running case. Weeks after Sebi's search-and-seizure at Quant Mutual Fund's offices, the company has confirmed the raids and said it was “not part of any regular process”.

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Which company owns Quant Mutual Fund? ›

The Mutual Fund was registered with SEBI on June 11, 2018 under Registration Code MF/028/96/4. quant Mutual Fund is sponsored by quant Capital Finance & Investments Private Limited.

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Should I stop SIP in quant? ›

Experts feel that investors should not stop their SIPs and said that staying invested can get them desired returns in the future.

Should I exit from mutual funds now? ›

Market Volatility and Risk Management

If a fund consistently underperforms over multiple periods and fails to deliver satisfactory returns, consider exiting the investment. Research and select funds with a similar investment objective but better track records and performance history to redirect your investments.

Is it advisable to stop SIP? ›

Many investors treat it as a diet fad – they start investing with gusto and give it all up within months of making a start. SIP cancellation is a bad idea. We have said this in the past, and we continue to reiterate that long-term investing toward a financial goal is the best way to invest.

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Is it better to pause SIP or cancel SIP? ›

SIP pause allows you to suspend your contributions for various reasons temporarily. Unlike cancelling a SIP, it allows investment growth during the pause period if the Mutual Fund performs well.

What are the disadvantages of quant funds? ›

Lack of Adaptability

The financial markets are highly volatile, and Algo-based trading models used for quantitative trading need to adapt to such volatile market conditions. This could be one of the biggest disadvantages of using quant trading if the model fails to adjust in such market conditions.

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How to pause quant mutual fund SIP? ›

1. Investor can Pause SIP at any time, by filling in the SIP Pause form and submitting the same at any POA of quant MF/Kfintech. 2. SIP Pause facility is available for only Monthly registered SIP.

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