Quant Mutual Fund Faces Irregularity Allegations: Investor Guidance from Motilal Oswal Executive Director
Quant Mutual Fund Accused of Front-Running
Quant Mutual Fund is currently under investigation by market regulator SEBI for allegations of front-running. In this scenario, investors in this mutual fund are questioning whether they should withdraw their money or remain invested.
Expert Opinion
Pankaj Mathpal, founder and CEO of Optima Money Managers, stated that the mutual fund has investments in major shares like Reliance, Adani Power, Tata Power, SAIL, LIC, and TCS. Even if SEBI’s investigation proves the allegations true, these shares are unlikely to be affected. Therefore, investors in Quant Mutual Fund are advised to stay invested.
Advice for New Investors
New investors who are considering investing in mutual funds may have questions about how to select the right fund. To answer these queries about mutual fund investments, fund selection, and other related topics, we spoke with Akhil Chaturvedi, Executive Director and Chief Business Officer of Motilal Oswal Asset Management Company.
This guidance aims to provide clarity and reassurance to both current and potential investors regarding their investment decisions in mutual funds.
1. Key Parameters for Selecting the Right Mutual Fund
Selecting the right mutual fund involves considering various parameters. Each investor has different goals, and choosing a mutual fund should align with these specific objectives. Here are six essential parameters that investors should consider before selecting a mutual fund:
1. Time Horizon
The investment duration plays a crucial role in fund selection. Investors need to determine how long they plan to stay invested. Short-term goals may require different funds compared to long-term goals.
2. Risk Tolerance
Understanding one’s risk tolerance is vital. Investors should assess how much risk they are willing to take and choose funds accordingly. High-risk funds may offer higher returns but also come with greater volatility.
3. Exit Load
Exit load refers to the fee charged when an investor exits a mutual fund before a specified period. Investors should check the exit load to avoid unexpected costs if they decide to redeem their investment early.
4. Fund Size
The size of the fund can impact its performance. Large funds may have more resources and stability, while smaller funds might be more agile but could be riskier. Investors should choose a fund size that matches their investment strategy.
5. Past Performance
Reviewing the fund’s past performance can provide insights into its consistency and reliability. However, past performance is not always indicative of future results, so it should be considered along with other factors.
6. Fund Manager’s Experience
The expertise and track record of the fund manager are critical. Experienced fund managers are likely to navigate market fluctuations more effectively, potentially leading to better fund performance.
By evaluating these parameters, investors can make more informed decisions and choose mutual funds that best suit their financial goals and risk appetite.
2. Is it Appropriate to Purchase Mutual Funds through a Distributor? How Does It Affect Returns?
Investors can purchase mutual funds directly (online or via the respective mutual fund’s website) or through financial intermediaries (registered mutual fund distributors such as banks, brokerage houses). There is no right or wrong way to purchase mutual funds; it depends on your individual circumstances.
Every investor has different goals and reasons for investing. Distributors help investors choose the right mutual funds based on their investment objectives/goals. Distributors are knowledgeable and experienced in mutual funds, and they can guide investors on their goals, needs, and risk appetite.
The mutual fund portfolio remains the same for both direct and regular clients. The difference in returns between the two is usually around 1%, as direct investors avoid the distributor and hence, the commission charged by the distributor.
3. The Role of a Fund Manager in Managing Mutual Fund Portfolios
The role of a fund manager is crucial to the success of a mutual fund. Fund managers are responsible for strategic planning, research, and oversight. They work to deliver the best results for their investors while managing risk. Key responsibilities include:
- Research and Analysis: Conducting thorough market research and analysis to identify potential investment opportunities.
- Portfolio Construction: Building a diversified portfolio that aligns with the fund’s investment strategy and objectives.
- Risk Management: Assessing and managing risks associated with the investments to protect the portfolio.
- Performance Monitoring: Continuously monitoring the performance of the portfolio and making adjustments as needed to optimize returns.
4. Risks Associated with Mutual Fund Investments and How Investors Can Mitigate Them
Mutual funds involve two major types of risks:
- Market Risk: Market risk affects all types of investments and can result in losses if the market declines. Diversifying assets and investing for the long term can help reduce market risk.
- Liquidity Risk: Some mutual funds invest in securities that are not easily tradable. Liquidity risk arises, especially during times of market volatility. Investors can reduce liquidity risk by reviewing the holdings of the fund and ensuring it invests in easily tradable securities.
5. What is the Concept of Expense Ratio in Mutual Funds and How Does It Affect Investors?
The expense ratio is the fee charged by the mutual fund for its management, expressed as a percentage. The expense ratio directly impacts the returns that investors receive. A lower expense ratio generally leads to higher returns for investors.
6. What Common Strategies Do Fund Managers Adopt to Achieve Investment Objectives?
A common strategy adopted by mutual fund managers to achieve investment objectives is diversification. Diversification can be across market capitalization, sectors, or asset classes.
The goal of this strategy is to reduce the overall risk of the fund by minimizing the impact of poor performance from any single investment. By diversifying their portfolios, mutual fund managers aim to balance potential returns and risks. This strategy allows investors to benefit from the potential growth of various sectors or asset classes.
7. How Do You See the Future of Actively Managed Mutual Funds Compared to Index Funds and ETFs?
As a fund house, we believe that India is an alpha market, meaning that active fund managers have the ability to outperform market indices.
Our investment philosophy revolves around identifying opportunities where active management can generate alpha, thereby providing better returns for our investors.
8. What Common Mistakes Do Investors Make and How Can They Avoid Them?
Common mistakes investors make when investing in mutual funds include lack of diversification, over-diversification, ignoring fees, frequent trading, not understanding the fund’s objectives, and emotional investing.
To avoid these mistakes:
- Diversify your investments appropriately.
- Choose funds after thorough research.
- Monitor and rebalance your portfolio.
- Understand the fund’s objectives.
- Consider tax implications.
- Invest with discipline and for the long term.
9. How Many Mutual Funds Should an Investor Ideally Have in Their Portfolio?
Typically, an investor should have around 5 to 6 funds in their portfolio. Holding more funds than this does not provide additional diversification benefits, as stocks often begin to overlap. Over-diversification makes it difficult to track and evaluate performance. For smaller investments, 1 or 2 balanced funds may be sufficient.
10. What is the Concept of Mutual Funds and How Do They Work?
Mutual funds offer investors the opportunity to invest in a professionally managed portfolio. A mutual fund pools money from many investors and invests it in a diversified portfolio of securities (equities, bonds, government securities, money market instruments, etc.).
The performance of the fund is tracked by its Net Asset Value (NAV). Mutual funds are regulated by SEBI, which ensures the protection of investors’ interests.
