Quant Mutual Funds: Safe Investment Or Risky Business?

The Quant Mutual Fund is one of India's oldest asset management firms, formed in 1996 as Escorts Mutual Fund. In 2018, it was bought by Quant Capital Finance & Investments Private Limited and renamed. The fund has grown from an AUM of Rs 235 crore at the time of its acquisition to Rs 1,01,169.60 crore as of September 30, 2024. While Quant Mutual Fund is one of the oldest AMCs in India, no asset management company can guarantee the safety of capital when it comes to market-linked investments like mutual funds. However, with three-year annualised returns of about 42%, the Quant Active Fund is among the top performers in the multi-cap category. The fund has been a consistent outperformer across long-term time frames and has beaten the category for three years in a row. The credit for the fund's outperformance goes to its fund managers, especially Ankit Pande, who believes in taking opportunistic bets.

Quant Mutual Fund's history and reputation

History of Quant Mutual Funds

Quant Mutual Funds have been in operation since 1996, making them one of the oldest and most pioneering mutual funds in India. The fund house itself changed hands in 2018, when Quant Capital, a broking and mutual fund distribution company, bought Escorts Mutual Fund, which then became Quant Mutual Fund.

Reputation of Quant Mutual Funds

Quant Mutual Funds are considered non-traditional and passive, with investment decisions based on advanced mathematical models and quantitative analysis rather than human judgment. This approach has its supporters, who believe that it helps cut down on the risks and losses associated with human fund managers. However, critics argue that quant funds present a systemic risk and that they fail just as often as they succeed, sometimes with disastrous consequences.

Quant funds have attracted a lot of interest and investment due to the returns they have generated over the years. However, according to a report by Institutional Investor, they have been underperforming since 2016.

One of the most famous quant hedge funds, Long-Term Capital Management (LTCM), collapsed in 2000 when its models failed to predict that the Russian government could default on its debt. This triggered a chain reaction that affected world markets, and the Federal Reserve had to step in to prevent further damage.

Despite this, Quant Mutual Funds remain popular in India, with a range of investment products across asset classes. Their focus on 'Predictive Analytics' has helped them sustain adverse market conditions and emerge as one of the top AMCs in the country.

The pros and cons of investing in Quant Mutual Funds

Quant Mutual Funds are a new concept in India, and while they are allowed by the SEBI as a thematic category in mutual funds, they are a small category. Each of the quant funds offered by various fund houses has its own set of rules. Before investing, it is important to understand each fund's concept and analyse the benchmark for performance comparison.

Quant funds are similar to semi-active and semi-passive investing. While they are governed by an algorithm, the ultimate investment decisions are made by the fund manager, who follows a set of norms and investing regulations based on mathematical and statistical methodologies.

Pros

• Minimum human intervention, resulting in impersonal decision-making and a lower risk of mistakes compared to conventional investments.
• Stronger risk control as the fund adheres to a defined investing plan regardless of volatile market conditions.
• A budget-friendly choice with low management costs due to its reliable and passive investing method.
• No human prejudices, resulting in objective approaches and outcomes that are not prone to behavioural biases.

Cons

• Quantitative models choose stocks based on predetermined parameters, so a high-potential stock may be overlooked if it does not meet the criteria.
• These investments are based on past performance and results, and some models do not account for unforeseen events. Therefore, these funds cannot guarantee profits.
• Quantitative funds that claim to be bear-proof or use short-term strategies can be dangerous, especially if they use derivatives and leverage in downturn forecasting.
• Lack of transparency as fund managers rarely divulge their fund's design or operation.

While no AMC can guarantee capital safety for market-linked investments like mutual funds, Quant Mutual Fund is one of India's oldest asset management firms. Their funds have delivered blockbuster returns, and their assets have been on the rise. For instance, the Quant Active Fund has had three-year annualised returns of about 42%, making it a top performer in the multi-cap category.

How to invest in Quant Mutual Funds

Investing in Quant Mutual Funds can be done in a few simple steps.

First, it is necessary to have your KYC (Know Your Customer) details verified. This is a standard requirement for investing in mutual funds in India and can be done digitally. For first-time investors, you will need to submit bank account details and nominee and FATCA declarations.

Once your KYC is complete, you can start investing. There are several platforms that allow you to invest in Quant Mutual Funds, including the Paytm Money app and website, and Scripbox.

If you choose to use Scripbox, you will need to visit the Scripbox website and click on the "Let's Get Started" button to see a list of investment options. Pick the option that best suits your financial goals, and then sign up for an account. You can then select your payment option, either "Every month SIP" or "One-time payment". You will then be shown a list of mutual funds to invest in and the allocated amount for your selected plan. If you are happy with the plan, you can proceed to the payment page, where you will enter your bank account and PAN details.

If you choose to use the Paytm Money app, you can follow these steps:

• Download the Paytm Money app and complete your KYC.
• On the homepage, type "Quant Mutual Fund" into the search bar.
• Select a mutual fund scheme of your choice, then tap "Invest Now".
• Select SIP or Lump sum mode and enter the amount of your investment. Tap "Proceed to Payment".
• Make a payment using Auto Pay, Netbanking, or UPI, then tap "Proceed to Payment" again to complete the transaction.

Quant Mutual Fund offers a diverse set of investment products across asset classes, including undefined equity, undefined debt, and undefined hybrid mutual funds. It has a strong track record, with dynamic and active money management, and the use of data analytical techniques. The fund managers have impressive credentials, with extensive experience in the financial industry.

How does Quant Mutual Fund compare to other mutual funds?

Quant Mutual Fund is one of the oldest mutual funds in India, established in 1996. It offers a diverse set of investment products across asset classes, including equity, tax-saving, debt, and hybrid categories. The fund has a dynamic and active style of money management, focusing on 'Predictive Analytics', which has helped it sustain adverse market conditions and emerge as one of the top Asset Management Companies (AMCs) in India.

Quant Mutual Fund's investment strategies are unique and do not necessarily fit traditional buckets like growth, value, quality, or momentum. Their approach can be described as "unconstrained", as they are sector-agnostic and not restricted to a particular investment style. This allows them to make quick changes to their portfolio.

The fund's top-performing schemes include the Quant Small Cap Fund, Quant Tax Plan Fund, and Quant Focused Fund, which have ranked #1 in their respective categories. Other top-performing schemes include the Quant Mid Cap Fund, Quant Large & Mid Cap Fund, and Quant Active Fund, which have outperformed their benchmarks and ranked among the top 3 in their categories.

When compared to other mutual funds, Quant Mutual Fund has delivered impressive returns. For instance, the Quant Active Fund, a multi-cap fund, generated three-year annualised returns of about 42%, outperforming its peers. The fund's risk-adjusted returns, measured by Jensen's alpha, were also significantly higher than the category average, indicating better risk-adjusted performance.

The credit for Quant Mutual Fund's outperformance goes to its fund managers, particularly Ankit Pande, who follows his convictions and is not afraid to make opportunistic bets. The fund's asset allocation strategy also plays a role in its success, with a focus on small-cap stocks during rallying periods and larger caps during better-performing periods.

In summary, Quant Mutual Fund's unique investment strategies, dynamic approach, and talented fund managers have contributed to its strong performance and risk-adjusted returns. However, it is important to note that no AMC can guarantee the safety of capital when investing in market-linked investments like mutual funds.

What are the risks of investing in Quant Mutual Funds?

Investing in Quant Mutual Funds, like any other investment, comes with its own set of risks. Here are some of the key risks associated with investing in Quant Mutual Funds:

Risk of Arbitrary Decisions

The fund manager's decisions are guided by a set of norms and regulations based on mathematical and statistical methodologies. However, the ultimate investment decisions are made by the fund manager, and there is a risk that they may make arbitrary choices that deviate from the quantitative model. This could potentially lead to unexpected outcomes.

Market Disturbances and Unanticipated Variable Movements

The quantitative models used by Quant Funds are based on historical data and proven mathematical models. However, these models may not always account for unexpected market disturbances or variable movements. In such cases, the fund's performance may be negatively affected, leading to potential losses.

Lack of Transparency

Fund managers of Quant Funds are often protective of their strategies and may not disclose their design or operation. This lack of transparency can make it challenging for investors to fully understand the fund's investment approach and potential risks.

High-Potential Stocks May Be Overlooked

Quantitative models used by Quant Funds select stocks based on predetermined parameters. As a result, stocks with high potential that do not meet the defined criteria may be overlooked. This could lead to missed opportunities for higher returns.

Reliance on Past Performance and Historical Data

Quant Funds are heavily reliant on past performance and historical data to make investment decisions. While this can provide insights into potential future trends, it does not guarantee future success. Market conditions and variables can change, and models that rely solely on past data may not be able to adapt to new or unforeseen events.

Risk of Derivatives and Leverage in Downturn Forecasting

Quantitative funds that claim to be bear-proof or use short-term strategies may employ derivatives and leverage in their downturn forecasting. Utilizing these complex financial instruments can be risky, especially during market downturns.

Limited History and High Volatility

Some Quant Funds, like the Quant Active Fund, have a limited history under their current fund managers. Investors should be cautious about putting too much weight on these funds' past performance and should be prepared for higher volatility due to the mandatory allocation to mid and small-cap stocks.

In conclusion, while Quant Mutual Funds offer potential benefits such as reduced human bias and efficient data analysis, they also carry significant risks. Investors should carefully consider these risks, conduct thorough research, and align their investments with their risk tolerance and investment goals before deciding to invest in Quant Mutual Funds.

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