Quant Mutual Fund Faces Allegations of Irregularities: Promises Full Cooperation in Investigation
Quant Mutual Fund Clarifies SEBI Investigation to Investors
Quant Mutual Fund has issued a clarification to its investors regarding SEBI’s investigation into a front-running case. Quant stated that it is “fully committed to cooperating with the regulator.” The company’s founder is Sandeep Tandon.
SEBI’s Investigation
Market regulator SEBI is conducting an investigation into this matter. According to a Moneycontrol report, searches and seizures have been carried out at multiple locations in Mumbai and Hyderabad. SEBI has also questioned Quant dealers and individuals connected to the case.
Quant’s Performance
Quant Mutual Fund is among the best-performing mutual fund houses over the past three years. Its Assets Under Management (AUM) grew from Rs. 258 crores in January 2020 to over Rs. 90,000 crores in June 2024.
What is Front-Running?
In mutual funds, front-running is an illegal practice where a broker or dealer uses advance knowledge of large pending mutual fund transactions to make personal trades.
How Does Front-Running Work?
Mutual funds execute large buy and sell orders in the stock markets through intermediaries like dealers. In such situations, a trader might enter those stocks to profit before the mutual fund’s large purchase or sale is executed.
When a mutual fund buys a large number of shares, the stock price rises, and the broker sells their shares for a profit. Similarly, during the mutual fund’s stock sale, the trader makes money through short selling.
How Does Front-Running Affect Investors?
Front-running impacts investors in several ways. For example, if a mutual fund plans to buy a large number of shares and an arbitrator buys the shares first, the share price increases before the mutual fund completes its purchase.
As a result, the mutual fund pays a higher price for the shares, reducing its potential returns. Conversely, during sell orders, the mutual fund receives a lower price for the shares, again reducing its potential returns.
How Does SEBI Handle Front-Running Cases?
When SEBI identifies violations, it imposes financial penalties. Typically, penalties are levied on dealers, fund managers, and external brokers who have colluded.
Last year, SEBI banned Viresh Joshi and 20 others from the securities market in the Axis Mutual Fund front-running case. Additionally, ₹30.55 crore was seized.
What is a Benchmark?
A benchmark usually refers to Indian stock market indices like the BSE Sensex and Nifty, against which mutual fund returns are compared.
Let’s Understand This with an Example…
If your particular mutual fund has provided a 59% return over a specific period, while its benchmark provided a 70% return during the same period, this indicates that the fund has underperformed compared to the benchmark. The higher the mutual fund’s return in comparison to the benchmark, the better its performance is considered to be.
