SEBI Action Against Quant Mutual Funds- Explained

Introduction

India has been many times ditched Financially at a very large level. Over the past few decades, India has witnessed many such big Scams, Cases, and illegal or suspicious activities that have impacted the Nation financially at its deep roots. Very sadly these acts are done by Indians only not by any outsider.

Yes, today we are here with another such case which has taken the internet on storm. Today’s Blog is about Quant Mutual Fund's front-running case. This case has set not just many common people’s hope and money at risk again but also it can impact the whole stock market once again at a very large level.

Let us see in detail what is this issue and how this came into the eyes of SEBI.

 

What is Quant Mutual Fund?

Quant Mutual Fund, founded in 1996, is one of the earliest and pioneering mutual funds in India, with a 22-year history in the asset management business in the nation. Sandeep Tandon founded Quant MF, which has been one of the country's fastest-growing mutual funds. The fund house received SEBI approval to enter the mutual fund business in 2017. Its AUM has risen from Rs 233 crore in March 2020 to Rs 90,000+ crore today.

Sandeep Tandon has over 25 years of expertise in the finance sector. Sandeep is currently in charge of investing choices for Quant Mutual Fund's 22 schemes.

 

Detailed Video

 

What is Front Running?

Front-running occurs when a person, generally an insider or an intermediary, executes a trade before using confidential data. For example, if an intermediary learns that a significant client is going to buy a significant amount of stocks of an organization and then purchases some shares in his account before the transaction is completed, this is an example of front-running.

This conduct is not only illicit but also illegal and prohibited in India.

 

What is Quant Mutual Fund Front Running Case?

SEBI's surveillance system indicated a case of front-running by suspected entities who were privy to what Quant Mutual Fund was going to buy or sell. It is suspected that Quant executives who knew the size and execution timing of the orders may have passed on confidential information regarding the impending trade order to suspected beneficiaries.

Quant Mutual Fund has many of investors concerned about what will happen to their money. Suspicions of various questionable actions surround the latest SEBI operation on Quant Mutual Fund, headed by Sandeep Tandon.

This has resulted in searches and seizures at its Mumbai headquarters and places associated with ownership in Hyderabad. In an attempt to identify the person(s) leaking confidential data from the asset management company to profit illegally, SEBI has confiscated computers, smartphones, and other electronic media. The probe has questioned Quant dealers and associates, with alleged profits estimated at Rs.20 crore. 

 

 

Is this the first instance of a Mutual Fund front-running?

No. In the most recent instance involving the asset management sector, SEBI prohibited the dealer of Axis Mutual Fund and twenty individuals from Nippon India Mutual Fund from participating in the securities market, resulting in the impoundment of unlawful gains valued at Rs 30.55 crore.

Who is SEBI targeting?

• Quant Executives: Given their access to private trading information such as order size and timing, SEBI is probably concentrating on these executives. These are the people who may be able to divulge such information.

• Suspected Beneficiaries: SEBI will probably interrogate these people to find out how they may have benefited from information leaks and what role they may have had in the purported insider trading.
  
  

How does it impact investors?

The negative news flow could put pressure on the fund house to redeem assets, which would lower NAVs. Smallcap equities that Quant MF held substantial positions are similarly susceptible to redemption pressure.

 

 

Impact on Stock Market and Others

The impact that this suspected front-running case might bring can’t be predicted as of now. But we are highlighting some facts about the Fund house and its present market value and other companies from different portfolios that are having their shares with it can have an idea about the destruction that it would like to cause Nationally.

The 250 companies that make up the Nifty Smallcap 250 TRI (Total Return Index) range in market capitalization from 251st to 500th in the larger Nifty 500 index. In the last six months, Quant Mutual Fund has returned 27.81%, and thus far this year, 17.86%. It has returned 64.64% over the last 12 months. The scheme's return since launch is 12.40%. The financial services industry has the most weight in Quant's small-cap plan (25.3%), followed by PSUs (14.3%) and the oil and gas industry (12.9%). Approximately 28% of the fund is allocated to large-cap equities, and 68% to small-cap stocks. 

India’s top leading companies that are contributing to the Nation’s GDP are among Quant's biggest holdings likewise Reliance Industries Ltd. (8.75% of AUM), Adani Power Ltd. (4.66%), JIO Financial Services Ltd. (4.52%), IRB Infra, and SAIL are some of Quant's major holdings. The third-largest small-cap fund in the nation, managed by Quant Smallcap, has over ₹21,000 crore in assets.

This news itself would encourage many investors to take an exit call from Quant Mutual Funds that will have negative cash flows of it and associated firms in the Stock Market. If SEBI takes some big action against Quant and freezes shares and monetary funds then not only Quant but other associated leading organizations would also be impacted which will ultimately affect just not the Stock Market but other different sectors as well. Now, what level of damage it's gonna bring, time will let us know.

 

 

 

SEBI's Actions:

SEBI recently released new regulations to stop similar acts in the future:

• Better internal controls and monitoring systems are mandatory for mutual fund companies (AMCs) under these regulations. This will assist in spotting questionable activities and stop front-running and insider trading.

• Additionally, SEBI is giving AMC management more accountability for upholding moral standards.

• To promote openness and whistleblowing, AMCs must put in place systems that allow staff members to report questionable activities.

 

What should Investors do now?

Experts predict that investors may not be significantly impacted. They note that the fund should be protected from NAV declines brought on by the SEBI action by its holdings in reliable stocks like Reliance, Jio Financial Services, HDFC Bank, Adani Power, Tata Power, SAIL, LIC, and Aurobindo Pharma. Previous similar investigations have also taken place, but the results have not had a long-term impact on mutual fund performance.

Because mutual funds have diversified their portfolios with equities and because market performance affects a mutual fund's NAV price, investors can feel safe about their investments. Therefore, it is doubtful that this inquiry will affect Quant Mutual Fund's performance.

“Investors in mutual funds, especially those using the SIP form, can keep their investments,” said an industry Expert. A mutual fund's Net Asset Value (NAV) is equal to the sum of its assets less its liabilities. It is the cost at which investors purchase and sell mutual fund units. The success of the equities in the fund's portfolio affects the NAV; outside variables, such as SEBI investigations, have no bearing on it.

So as of now, as an investor you should not panic as your investment of money is regulated by SEBI; hence money is still safe.

However, we are not recommending any call in this matter. The information and predictions are just based on the Rules of SEBI and previous similar incidents and outcomes that happened.

 

Conclusion

The latest news of Quant Mutual Fund has taken the peace of many investors. If the suspected news and subsequent probes into this matter by SEBI found Quant guilty of illegal activities then again there would be a high time for a Stock Market crash.

Disclaimer: This analysis is only for informational purposes and should not be considered as investment advice. Always do your research and consult with a financial advisor.

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