What does Quant Mutual Fund Has to Say About the SEBI Probe?

To address investor concerns, Quant Mutual Fund's Founder and Chief Investment Officer, Mr Sandeep Tandon, held a Zoom call on June 26. During the call, the fund management company assured investors and other stakeholders that the allegations were overblown and that they should not redeem their investments in panic.

[Read:  Front-running Cases in Mutual Funds: All You Need to Know]

According to Mr Tandon, the noise around what the fund house is doing is driven by 'jealousies or other factors', but the fund house will remain steadfast in its reliance on data and analytics. It is noteworthy that most equity schemes of Quant Mutual Fund have generated stupendous returns over the last few years and have been category toppers across time frames.

He went on to pacify investors about the fund's liquidity position and the ability to manage risk. At about 1.5% of the AUM, Mr Tandon said that the pace of redemptions has not been alarming while adding that gross inflows remained normal while gross outflows have increased.

In the call, Tandon said that the fund has pivoted from mid caps to large caps, and from illiquid to liquid shares over the past few months. As per his presentation, as of June 25, the fund's liquid assets which include large-cap stocks, Treasury bills, government securities, gold and silver totalled approximately Rs 47,640 crore, or about 50% of the equity AUM.

The table below shows the large-cap, and cash and debt balance of some of the popular schemes of Quant Mutual Fund, indicating sufficient liquidity.

As per the latest stress test result of May 2024, Quant Mid Cap Fund would take 9 days to liquidate 50% of the portfolio and 5 days for 25% of the portfolio.

For Quant Small Cap Fund, it will take 28 days to liquidate 50% of the portfolio and 14 days for 25% of the portfolio. The higher liquidity days for the fund compared to many of its peers is due to its large asset size of Rs 21,000 crore, the fourth largest in the category.

Mr Tandon also addressed the high portfolio churn in its equity schemes stating that its dynamic investment strategy has helped it manage risk and generate high alpha for its investors. He further elaborated that 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 not be severe as the method of investment will still be based on the algorithm.

On June 27, the fund house also released via email answers to some of the frequently asked questions of investors relating to the ongoing investigation.

In that, the AMC clarified that SEBI enquiry has not concluded yet and that it is a regular ongoing process globally by the capital market regulator to collect data and analyse it. It further added that SEBI has not convicted anyone from the AMC and there is no judgement as yet on the front running. Further, the AMC has not received any communication from SEBI after initial enquiries.

On whether the AMC offices are functioning normally, the fund house replied that its offices and all team members including sales, investment, dealing, finance, IT, and others are working normally and at full capacity.

Quant Mutual Fund also addressed investors' concerns regarding whether the fund house will deliver similar returns after the enquiry. To this the AMC replied that the returns are a by-product of research capabilities and style of management. The fund house manages risk dynamically to give superior risk-adjusted returns. As they are functioning normally, the performance should be at par with their style.

Final thoughts

Quant Mutual Fund has addressed investors' concerns by clarifying that SEBI's investigation is a regular process and that the AMC is committed to providing complete cooperation with the regulatory authority. It also assured investors that the liquidity position of its schemes remains healthy which can cushion the impact of any potential redemption pressure.

Thus, investors in Quant Mutual Fund should avoid any knee-jerk reaction and await further clarification, evidence and reports of investigation by the SEBI before taking any portfolio decisions.

Many equity mutual fund schemes of Quant Mutual Fund across categories have been top performers, with several of them on the 'Buy' and 'Hold' list of PersonalFN. We will update our subscribers in case of any change in our view of the scheme/s amid the SEBI probe.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.