Don't panic sell just yet! says Morningstar amidst Quant MF-Sebi debacle

): If you're already invested in Quant MF, some advisors suggest holding on for now. But this depends on your own risk tolerance.

 With the ongoing Sebi investigation into Quant Mutual Fund casting a shadow, investors are understandably worried about their holdings.  Financial advisory platform Morningstar has said panicking and selling investments or stopping Systematic Investment Plans (SIPs) is not recommended at this stage.  For those already invested in Quant funds, Morningstar suggests maintaining their current holdings. However, they advise against making fresh investments in Quant funds until the situation becomes clearer. This allows investors to avoid potentially putting additional money at risk.

Quant Mutual Fund, a high-growth asset management company (AMC), has found itself in the spotlight after  Sebi launched an investigation into potential front-running activity.  This practice involves someone with advanced knowledge of upcoming fund purchases using that information to make personal stock trades beforehand, profiting from the anticipated price increase when the fund executes its actual trade. Imagine you're managing a club that pools everyone's money to buy delicious organic mangoes. You use your knowledge to find the sweetest mangoes at the best prices. Suddenly, the market watchdog suspects you might be secretly buying mangoes yourself before you buy them for the club, driving the price up for everyone else! That's kind of what's happening with Quant Mutual Fund.

 

"While  investors should avoid any knee-jerk reaction, that also doesn’t mean that they do nothing. A  measured response is essential in dealing with such cases. Investors should stay informed about developments in this matter and monitor any directives from SEBI. Redemption 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,"said Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Research.

As of May 2024, two Quant Mutual Fund schemes - Quant Small Cap Fund and Quant Active Fund - have asset sizes exceeding Rs 10,000 crore.  The NAV (Net Asset Value) of Quant Active Fund did decline by 0.69% on Monday. However, it's important to remember that short-term NAV fluctuations are normal in the stock market.

Quant's assets under management (AUM) have witnessed a significant increase of 251% in the last year (May 2023 to May 2024). This translates to a jump from Rs 23,956 crore to Rs 84,030 crore. The growth wasn't evenly distributed.

• Quant Small Cap Fund: This fund's AUM saw a surge of 357% within the same period.
• Quant Mid Cap Fund: Similarly, the Mid Cap Fund's AUM grew by a substantial 303%.

Quant Small Cap Fund:

Impressive Returns: This fund has delivered a stellar 495% absolute return over the past five years. This means a Rs 10,000 investment made five years ago would be worth approximately Rs 59,500 today (not accounting for reinvested dividends).

Outperforming Benchmark: Notably, the fund significantly outperformed its benchmark, the Nifty Smallcap 250 TRI, which generated a 250% absolute return in the same period.

Largest Fund: With assets under management (AUM) of Rs 21,243 crore as of May 2024, this is Quant's biggest fund.

Quant Mid Cap Fund:

The Mid Cap Fund has also delivered impressive results, generating an absolute return of 348.65% over the past five years. Similar to the Small Cap Fund, it outperformed its benchmark, the Nifty Midcap 150 TRI, which returned 248.02% during the same timeframe.

Why is this relevant?

These figures highlight Quant's strong track record of generating returns for investors, particularly in the small and mid-cap segments. While past performance doesn't guarantee future success, it does provide some reassurance to investors who might be questioning their investments due to the ongoing SEBI investigation. The fact that these funds have consistently outperformed their benchmarks further strengthens the argument for staying invested, especially for those with a long-term investment horizon.

"At the moment we will like to give 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. We all know how good they have been in their performance. Massive redemptions across the board should be clearly avoided till absolute clarity is received. 

Investors should continue their SIP’s in the Quant funds but wait for lump some investments in their schemes till the enquiry is completed. There is no need to panic as we have full confidence in the regulator," said Gaurav Goel, Sebi-registered investment advisor.