Quant has a problem
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SEBI is investigating a possible front-running scandal at Quant Mutual Fund. What should investors do?
Mutual fund investors woke up to the news that Quant Mutual Fund is under investigation because SEBI has observed trading patterns that suggest front-running by someone associated with the fund house. The AMC has issued a pro forma statement confirming the news and promising cooperation with the investigation.
Naturally, investors in the AMC's schemes are worried about what this means for their money. Quant is a high-profile fund house. In a relatively short period of six years, it has grown to an asset base of Rs 84,000 crore, most of it in equity. Moreover, its funds are good performers. As such, this news has come as a shock to a lot of people. Trust and ethical behaviour are cornerstones of any financial business, more so for mutual funds. Of course, nothing is yet certain, and the matter is under investigation, but on issues like this, one can expect SEBI to go public only when it has a high degree of certainty.
So, what does this mean for investors? That's a hard question to answer at this point. Situations like this have also occurred earlier, for example, with Axis Mutual Fund and HDFC Mutual Fund. SEBI should investigate and take appropriate action against those who engage in front-running and those who should have prevented it but failed to do so. They should also claw back any illicit profits and add them to investors' assets.
However, all things considered, and drawing a parallel with past cases, there is little logic in investors getting out of Quant funds based on what we know so far. It's possible that the circumstances may be worse than they look right now, but wait and watch is the right policy.
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Wait and watch...