
Investors of Quant Mutual Fund are under immense pressure since the markets regulator Securities and Exchange Board of India (Sebi) initiated a probe into their alleged front-running activities. The regulatory body carried out search and seizure activities in Mumbai and Hyderabad, interrogating Quant dealers and individuals linked to the situation.
Investors of Quant Mutual Fund have redeemed investments totaling approximately Rs 1,400 crore over the past three days. Concerns have arisen among investors, prompting them to question whether they should consider discontinuing their Systematic Investment Plans (SIPs) or refrain from making any fresh investments in the fund.
Quant Mutual Fund is known for its impressive schemes across various time periods within the equity categories. One noteworthy example is the Quant Small Cap Fund, which has shown remarkable performance over the past five years. In five years, the fund achieved an exceptional absolute return of approximately 495%. Similarly, the Quant Mid Cap Fund has also performed well, providing investors with a return of 348.65% over the same time frame.
Quant Mutual Fund reported having approximately Rs 9,355 crore in its coffers in May, according to ET Mutual Funds, representing approximately 12.41% of its total Assets Under Management (AUM). The total equity AUM of the fund house stood at Rs 66,052 crore.
The fund house, which manages a total of 21 equity mutual fund schemes, has reported that out of the 21 schemes, four of them currently hold cash reserves exceeding Rs 1,000 crore in their portfolios.
Fisdom Research
Fisdom Research, which issued a research note for investors, said Quant Mutual Fund's structure offers some buffer against a potential investor exodus.
It noted that Quant's assets are spread across nearly two dozen equity funds, mitigating the impact of any single underperforming fund. "The fund house manages a diverse portfolio of 21 equity-dedicated funds with assets well spread across funds. Assets appear to be effectively distributed across client segments. We estimate the fund house to be managing investments pegged to over 70 lakh folios," said Fisdom.
A strong Systematic Investment Plan (SIP) scheme of over Rs 1,200 crore ensures steady inflows, which could help counterbalance investor withdrawals. "We estimate the fund house to be managing a healthy SIP book of over Rs 1,200 crore reflecting sticky retail inflows that is expected to anchor invested AUM meaningfully within current ranges," noted Fisdom.
Quant MF has seen a rise in its assets, surging from Rs 2,400 crore in 2019 to Rs 93,000 crore ($11.1 billion) currently, making it one of India’s fastest-growing mutual funds.
Liquid assets Presumably, Quant holds some readily saleable stocks to meet any immediate redemption needs.
"We view the liquidity profile for both funds relatively comfortable versus key category peers. Such an assessment is attributable to relatively higher allocations to more liquid large-cap stocks even in pure midcap and smallcap funds along with a higher proportion of cash. At the same time, it is expected that the fund house will attempt to liquidate more liquid positions while being conscious of risks associated with elevated impact cost as it moves down the liquidity curve within holdings," Fisdom noted.
“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.
Morningstar Investment Research
“Redemption at this point is highly individual-driven and depends on various factors unique to each investor. However, an ideal approach is to hold on to existing investments, while investors can choose not to invest incremental money in these funds. Investors can make more informed decisions once there is greater clarity on the situation,” said Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India.
Anand Rathi Wealth Limited
"Mutual fund investors should not react to news unlike stock investors. A negative news on stock can lead to an immediate fall in stock price but that logic is not applicable to a mutual fund. A mutual fund is a basket of stocks, and its performance depends on the underlying performance of stocks. Any negative news on AMC cannot impact the mutual fund performance if the underlying stocks continue to do well. As such, investors should continue to hold on to their investments in Quant AMC and can continue with their fresh purchase plans," said Feroze Azeez, Deputy CEO, Anand Rathi Wealth Limited.
Other experts
“No, investors should not liquidate their investments. In the short-term, this may impact the NAVs in that fund house due to the selling pressure. 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. We do not see any major impact on the performance of the funds. Massive redemptions across the board should be clearly avoided till absolute clarity is received. Investors should continue their SIPs in the Quant funds but wait for lump some investments in their schemes till the inquiry is completed," said Gaurav Goel, Sebi-registered investment advisor.