Quant MF front-running case: What is it and what should you do as an investor?

So what's the deal with Quant Mutual Fund? Why is Sebi investigating it and what should you know as an investor? I will tell you everything about it. In today's ET Market Decoder, I'm Neha Vashisht Mahajan. Let's take a look. Firstly, let's start with what happened recently. Quant Mutual Fund, the fastest growing mutual fund in the country with over 9300 crore rupees of AUM is being investigated by the Sebi on suspicion of front running. The market regulator recently conducted search and seizure operations in the suspected case as well. During raids at Quant Mumbai headquarters and a Hyderabad address, Sebi seized mobile phones, computer and other digital devices to identify the source of leaked confidential information used for illicit profit. Sebi suspects that a dealer from Quant or a broking firm handling Quant orders is involved, according to ET. So what exactly is front running? Front running happens when a person, usually an insider or a broker, makes a trade in advance based on privileged information. For example, if a broker knows that a big client is going to buy a large number of shares of a company and he also buys some shares in his personal account before the transaction is done, then it is a case of front running. The practice is not only unethical but also illegal and banned under Sebi regulations. What happened at quant mutual fund? Sebi surveillance system detected potential front running by individuals with insider knowledge of quant mutual funds trades. It is suspected that quants executives aware of trade sizes and timing may have leaked this confidential information to others. Quant AMC in a note to its investors said that it is a regulated entity and it is fully committed to cooperation. The fund house will provide all necessary support to Sebi on a regular and as needed basis. So, is this the first case of front running in a mutual fund? No, the last case from the asset management industry was reported at Axis Mutual Fund in which Sebi barred the funds dealer and 20 other entities from the securities market, impounding wrongful gains worth 30 point five ₹5,00,00,000. Back in 2007, a front running case was also reported at HDFC Mutual Fund. Now how does it impact quant mutual fund investors? As per experts, the fund house may see redemption pressure as a result of negative news flow leading to a fall in Navs. Small cap stocks in which quant mutual fund had significant positions can also come under selling pressure. Keetan Shah of Credence Family Office said there might be selling in mid and small stocks that quant holds and expect some underperformance by the funds in the near term. Shaw said that liquidity would not be a problem from a redemption perspective, as both its small cap and midcap funds have almost 10% each in Reliance Industries alone. Prime investors said an exit is further necessary in quant funds given that many of their stocks are momentum place and sudden redemptions and disruptions in inflows can have a greater impact on such strategies. How does front running affect a fund? Front running can erode investor trust, potentially leading to redemptions and affecting the funds net asset value or NAV. The investigation might cause uncertainty, making investors hesitant to invest or prompting them to redeem their investments until the issue is resolved. Amit Goyal of Page 360 said in most cases, investors money in mutual funds is held securely even if the fund house is penalized. Investor money is typically not directly at risk. The Securities and Exchange Poor of India is the regulator and the primary focus is protecting investor interests. Quant has about 80,00,000 plus portfolios under its Kitty. Well, that is all for today. Stay tuned to ET Markets for more.