Quant Mutual Fund stress test: 28 days to liquidate 50% of small-cap fund, 9 days for mid cap fund

Amid the front-running allegations on Quant Mutual Fund after the Securities and Exchange Board of India (SEBI) launched a probe into the MF house, there have been questions about whether investors need to worry about their investment in the various Quant MF schemes.

According to the stress test results released by AMC on June 15 for the month of May, it has been determined that the small-cap portfolio would take 28 days to liquidate 50% of its holdings. Additionally, it has been found that to liquidate 25% of the Quant MF portfolio, the small-cap fund would need 14 days for completion.

For the Quant Mid Cap Fund, it would take 9 days to liquidate 50% of its portfolio and 5 days to liquidate 25%.

The Quant Mid Cap Fund showed an annualised standard deviation of 15.85, slightly higher than its benchmark at 14.73. In contrast, the Quant Small Cap Fund has an annualised standard deviation of 18.62, slightly surpassing its benchmark at 18.08. These volatility measures are crucial for risk assessment in investment analysis.

Since March of this year, mutual funds in India have been adhering to a mandate from SEBI by publishing monthly stress test results for small-cap and mid-cap funds. The purpose of these stress tests is to assess the speed at which fund managers can liquidate their portfolios in the event of a high volume of redemption requests during challenging market conditions. The inaugural batch of stress test disclosures was made available on March 15, 2024.

In March, Quant Mutual Fund announced that the time taken for 50% portfolio liquidation is 6 days for its Quant Mid Cap Fund and 22 days for the Quant Small Cap Fund. Further, the time taken for 25% portfolio liquidation is 3 days for the Quant Mid Cap Fund and 11 days for the Quant Small Cap Fund.

Quantitative Mid Cap Fund's investment portfolio is structured with 21.45% allocated to large-cap stocks, 65.63% invested in mid-cap stocks, and 12.90% diversified in other assets such as cash and cash equivalents. On the other hand, Quantitative Small Cap Fund holds 24.55% in large-cap stocks, 65.93% in small-cap stocks, and 9.51% in other assets, including cash and cash equivalents. Notably, data reveals that Quantitative Small Cap Fund boasts the highest portfolio turnover ratio among all small-cap schemes at 1.57%.

On Sunday, it was reported that Quant Mutual Fund is being probed for its irregularities in the management and illegal practice that involves fund managers placing their own orders before executing large trades to profit from the anticipated price movement.

In a communication to investors late on Sunday, Quant MF said it had received inquiries from Sebi. "Recently, Quant Mutual Fund has received inquiries from SEBI, and we want to address any concerns you may have regarding this matter. We want to assure you that Quant Mutual Fund is a regulated entity, and we are always fully committed to cooperate with the regulator throughout any review. We will provide all necessary support and continue to furnish data to SEBI on a regular and as-needed basis," it said.

Quant MF has seen significant growth in recent years driven by retail inflows. Its AUM surged from Rs 233 crore in March 2020 to Rs 80,470 crore at present. Quant Mutual Fund has a diverse portfolio consisting of 21 equity-dedicated funds spread across different client segments to reduce concentrated risk.