Quant MF SEBI probe: Can it impact fund investors’ wealth?

Media reports on Sunday, June 23, suggested that the Securities and Exchange Board of India (SEBI) conducted search operations at Quant Mutual Funds’ premises in Mumbai and Hyderabad on suspicion of front-running. However, the fund house has clarified to its investors regarding the SEBI probe, saying it is “fully committed to cooperating with the regulator”.

Also Read: ’Our primary goal…’ says Quant Mutual Fund on front-running allegations

Experts anticipate some knee-jerk reaction, triggering outflow from the fund. However, it may not be sustained, and they say there are no major risks to investors’ wealth.

“At most, we sense that we may witness some outflows from Quant Mutual Fund, which would be an expected sentimental knee-jerk reaction to the recent SEBI enquiry against the fund house for front-running allegations,” said Manish Chowdhury, the head of research at StoxBox.

However, Chowdhury added that there could be no major shift of money away from the fund house as the fund house has delivered superior risk-adjusted returns in the past across various market cycles by deploying a combination of multi-faceted research and technology.

“With an enquiry still underway and based on the ramifications of the recent Axis MF fiasco, we anticipate the company will come out of the woods and would not be surprised to see further growth in its assets under management (AUM) going ahead,” said Chowdhury.

India’s fastest-growing fund house, Quant MF, has an AUM of more than 90,000 crore. SEBI has accused it of front-running- a sort of market manipulation.

As the name suggests, front-running means trading in a stock or any financial instrument by someone with inside information about a future transaction that would affect the financial instrument’s price.

Also Read: SEBI crackdown on Quant MF: What is front-running? All you need to know

“Front-running essentially involves buying stocks before the fund itself does, driving the price up. This means the fund buys at a higher price, potentially impacting investors’ returns,” said Amit Goel, co-founder and chief global strategist at Pace 360.

Goel pointed out that front-running erodes investor trust in the fund house, which can lead to redemptions, affecting the fund’s net asset value (NAV). The investigation itself can create uncertainty, causing investors to hold off on further investments or even redeem existing ones until the situation is resolved.

However, Goel emphasised that investors’ money will not be at risk even if the fund house is penalised.

“In most cases, investor money in mutual funds is held securely. Even if the fund house is penalised, investor money is typically not directly at risk. The SEBI is the regulator; its primary focus is protecting investor interests,” said Goel.

Quant Mutual Fund, founded by Sandeep Tandon, has been one of the fastest-growing mutual funds in the country. It has had a phenomenal run as its assets multiplied tenfold, growing from 100 crore in 2019 to nearly 90,000 crore now.

Also Read: Quant Mutual Fund: A look at the MF under SEBI scanner for front-running, founder Sandeep Tandon’s philosophy, success…

Tandon has been the star fund manager of the fund house. Popular for relying on a data-driven investment approach, Tandon has said in the past that he does not mimic anyone’s strategy.

“Everyone wants to be the next Warren Buffett of India. I don’t have any investment, and I don’t try to mimic anyone’s strategy. Long-term investments and value for money have been the driving factors behind Quant’s start,” he told Mint in an interview for the Guru Portfolio series.

Read more: Quant MF boss loves uncharted terrain: ’Harshad Mehta days, data-driven investments’ How Sandeep Tandon started it all

Mohit Gang, the CEO of MoneyFront, also believes investors need not panic, as nothing will go amiss with their money. However, there could be some redemption pressure, as the allegations are against the fund house’s star fund manager.

“If allegations are established, it is an individual wrong-doing, not an institutional failure. Having said that, the key-man risk is fairly high in Quant AMC as it solely depends on its star fund manager, the founder. Funds might see some redemption pressure for a short while, but again, no panic reaction is warranted,” said Gang.

“The long-term credibility might take a hit if something is established, as we saw in the case of a big AMC a couple of years back. As of now, investors should hold on to their allocations and wait for further updates on this,” said Gang.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.

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Published: 24 Jun 2024, 01:52 PM IST

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