Quant MF bleeds red: Investor outflows hit top 5 funds, what should you do?

Between June 24 and June 30, there was a net outflow of Rs 2,800 crore, representing 3 per cent of the assets under management (AUM) from the previous week.

Following  market regulator Sebi's investigation into possible "front-running" (using insider information for personal gain), investors are pulling their money out of Quant Mutual Fund for the first time in 2024. This lack of confidence has led to net outflows of Rs 2,800 crore, noted Value Research in a note with the Quant Small Cap Fund experiencing the biggest hit, as investors seek alternative mutual funds or safer investment options in the wake of the probe.

The front-running allegation against Quant Mutual Fund suggests that some individuals within the fund might have been exploiting confidential information for personal benefit.

Here's a breakdown:

Front-running explained: Imagine having access to a company's secret plans for a big acquisition before it's officially announced. In the stock market, front-running involves using such insider information to buy shares of the target company before the official announcement. This drives the stock price up, allowing the insider to sell their shares at a profit when the news becomes public.

Quant's alleged misconduct: SEBI suspects similar activity might have happened at Quant Mutual Fund. Some individuals might have used their knowledge of upcoming large investment deals to buy stocks for themselves before the official announcement. This could have allowed them to profit while keeping regular investors unaware of the opportunity.

According to Value Research, the AMC faced its first weekly net outflows of 2024 in June's final week, breaking a six-month streak of positive inflows. 

"The period of June 24 - 30, 2024, saw a net outflow of about Rs 2,800 crore, approximately 3 per cent of the previous week's AUM. Quant's flagship Small Cap Fund , managing Rs 21,423 crore and representing a quarter of the fund house's AUM, suffered the highest outflows, accounting for 28 per cent of June's final-week exodus. Coming to outflows in funds based on their AUM, Quant's PSU fund saw the highest exodus, about Rs 80 crore, representing  eight per cent of the fund's total assets on June 21, 2024," said Value Research. 

Value Research also said that Quant's five largest mutual funds experienced outflows following front-running allegations in the last week of June.  Here's a breakdown based on Value Research estimates (in crore rupees):

Quant Small Cap Fund:

• AUM (June 2024): Rs 22,967 crore (largest AUM among Quant's top 5)
• Outflows: Rs 809 crore (highest outflow among all Quant funds)
• Investment Focus: Primarily invests in smaller companies with high growth potential.

Quant Active Fund:

• AUM (June 2024): Rs 10,758 crore
• Outflows: Rs 374 crore
• Investment Focus: Actively managed fund that seeks to outperform the broader market by selecting promising stocks across sectors.

Quant ELSS Tax Saver Fund:

• AUM (June 2024): Rs 10,528 crore
• Outflows: Rs 28 crore
• Investment Focus: Equity Linked Savings Scheme (ELSS) offering tax benefits for long-term investments. Primarily invests in equity stocks.

Quant Mid Cap Fund:

• AUM (June 2024): Rs 8,747 crore
• Outflows: Rs 306 crore
• Investment Focus: Focuses on companies with a market capitalization between that of small and large-cap companies.

Quant Flexi Cap Fund:

• AUM (June 2024): Rs 6,885 crore
• Outflows: Rs 338 crore

• Investment Focus: Offers flexibility by investing across market capitalizations (small, mid, and large-cap).

Value Research also noted that the top five funds of Quant Mutual Fund have increased their holdings in HDFC Bank and Reliance Industries while Quant's small-cap fund has shifted 3 per cent of investor money towards large caps.

"Despite SEBI's investigation into Quant's suspected front-running activities, withdrawals from the fund house remain low. As such, investors should continue to maintain a wait-and-watch approach," it added.

Fisdom Research, which issued a research note for investors, said Quant Mutual Fund's structure offers some buffer against a potential investor exodus.   

It noted that Quant's assets are spread across nearly two dozen equity funds, mitigating the impact of any single underperforming fund. "The fund house manages a diverse portfolio of 21 equity-dedicated funds with assets well spread across funds. Assets appear to be effectively distributed across client segments. We estimate the fund house to be managing investments pegged to over 70 lakh folios," said Fisdom.