The Securities and Exchange Board of India (SEBI) is currently investigating Quant Mutual Fund for allegations of front-running activities. Let’s take a closer look at what front-running is and the details of this investigation – All about Quant Mutual Fund Front-Running Scam
What is Front-Running?
Front-running is an unethical practice in the financial industry where a broker or other entity executes orders for their own account based on advance knowledge of pending orders from their customers. This is done to take advantage of the expected price movements caused by these pending orders. Here’s a detailed breakdown:
Order Knowledge: A broker becomes aware of a large customer order that will affect the price of a security.
Personal Trade: Before executing the customer’s order, the broker buys or sells the same security for their own account.
Price Movement: When the large customer order is executed, the price of the security moves in the expected direction.
Profit: The broker closes their position and profits from the price movement caused by the customer’s order.
This practice is illegal because it misuses the broker’s insider knowledge and breaches the trust between the broker and the customer. It can also distort market prices and harm the integrity of financial markets.
Also Read: Equity or Mutual Funds in 2024: Where Should You Invest?
What Are the Allegations Against Quant MF?
While it is unclear when and where SEBI received the tip-off, the investigation has led to searches at Quant Mutual Fund’s offices. According to the investigation, SEBI has conducted search and seizure operations at Quant’s head office in Mumbai and at the addresses of suspected beneficiaries in Hyderabad.
SEBI’s surveillance system alerted them to transactions by certain entities that closely matched Quant Mutual Fund’s transactions, raising suspicions of information leaks.
Who is the Prime Suspect in Quant Mutual Fund Front-Running Scam?
SEBI suspects that either a dealer at Quant or a broking firm handling the fund’s orders leaked trade information. During the search operations, SEBI seized digital devices such as mobile phones and computers to collect evidence. These devices are being examined to identify those who shared confidential trade information.
Based on preliminary findings, SEBI will question individuals with access to Quant’s trade information. The focus is on executives who knew the size and timing of the orders and could have passed this information to external beneficiaries.
Quant’s Clarification
Quant Mutual Fund has issued a clarification, confirming that they have received inquiries from SEBI and are fully committed to cooperating with the market regulator. As per Economic Times, they stated:
“We do not comment on media reports, but we wish to provide an update to maintain transparency with all our stakeholders. Recently, Quant Mutual Fund received inquiries from SEBI, and we are addressing any concerns regarding this matter. We assure you that Quant Mutual Fund is a regulated entity, and we are committed to full cooperation with the regulator. We will continue to provide SEBI with data as required.
Quant Mutual Fund has grown to become the country’s fastest-growing and best-performing fund house. Our primary goal is to provide superior risk-adjusted returns to our valued investors. Your trust is vital to Quant Mutual Fund, and we are dedicated to maintaining transparency and adhering to regulatory standards.”
SEBI has not yet made an official comment on the matter.
Is Investor Money at Risk?
In most cases, investors’ money in mutual funds is securely held. Even if the fund house faces penalties, investors’ funds are not directly at risk. SEBI’s main focus is to protect investors’ interests.
While SEBI’s actions have raised some concerns among Quant Mutual Fund investors, experts suggest that there is no need to worry. SEBI will take necessary steps to protect investors’ interests, as it has done in the past.
About Quant Mutual Fund
Quant Mutual Fund was founded by Sandeep Tandon and received its mutual fund license from SEBI in 2017. It is one of the fastest-growing mutual funds in the country, with assets growing from Rs 100 crore in 2019 to over Rs 90,000 crore. In January of this year, it crossed Rs 50,000 crore in assets, with 26 schemes and 54 lakh folios.
The fund’s performance has been impressive. Its small-cap fund manages over Rs 20,000 crore and has been the top-performing fund in its segment over the past five and three years. Over the past five years, it has delivered an annualized return of 45%, compared to the category average of 31%. In the past year, the fund delivered a return of 69%, against the category average of 55%. Notably, in May, 43% of the total flows in the small-cap fund category went into the Quant Small-cap Fund.
SEBI’s Actions So Far
Just like in Bollywood movies where the police arrive at the last moment, SEBI’s involvement seems delayed. However, now that the issue is out in the open and the probe is underway, there is hope that such practices will be curbed. Investors need not worry, as the regulatory body will handle the situation.
Quant Mutual Fund’s Top Equity Holdings
The fund’s portfolio includes a diverse range of high-performing stocks, contributing to its strong returns and growth.
The top holding is Reliance Industries – Rs 7500 crore. The second and third largest holdings are Adani Power and Jio Financial respectively with nearly Rs 4000 crore worth shares.
This is something that we know about Quant Mutual Fund Front-Running Scam till now.
