Quant Mutual Fund Case: What do the allegations of front-running on Quant Mutual Funds mean? Can you also suffer losses?

SEBI Action in Quant Mutual Fund front-running case: The front-running allegations against Quant Mutual Fund and the action being taken by SEBI in this matter have worried millions of investors. People associated with this asset management company (AMC) have been accused of leaking confidential information. After which raids are being conducted at many places related to the company. But this question is still arising in the minds of investors that what does the allegation of front running against Quant Mutual Fund mean? And what loss can common investors suffer due to these allegations? Quant Mutual Fund is one of the fastest growing mutual fund companies in the country, whose current asset under management (AUM) is said to be around Rs 93,000 crore.

What does front-running mean?

When a person associated with a mutual fund, such as a fund manager, his staff, dealer or broker, uses confidential information to make personal profits in an unfair manner, it is called front-running. For example, if a broker or dealer knows that a big client is going to buy a large number of shares of a company, due to which the price of that share is going to increase and in such a situation, he uses this information to make personal purchases in advance of that share and makes profits, then it is a case of front-running. Doing this is not only morally wrong, but it is also prohibited under SEBI rules.

What is the allegation against Quant Mutual Fund?

SEBI suspects that people associated with Quant Mutual Fund have made profits by using the methods of front running mentioned above. According to media reports, it is suspected that people associated with Quant who knew about the large orders for buying shares given by the fund house and the timing of their execution, were giving confidential information of the upcoming trade orders to some people who were making huge profits with their help. According to media reports, Quant’s dealers or the brokerage firms associated with it are also suspected to be involved in this matter. Through which AMC places its orders. However, Quant AMC has said in a statement issued after the matter came to light that it is fully cooperating with SEBI’s investigation and will continue to provide all the necessary information and data. SEBI has also seized several mobile phones, computers and other digital devices while raiding Quant’s Mumbai headquarters and Hyderabad premises of the suspected beneficiaries in this case.

Is this the first case of front-running?

No. There have been many such cases in the mutual fund asset management industry before. For example, in April 2024, SEBI imposed a fine of Rs 4 crore on Maxgro Fintrade and its directors Bhavin Pankaj Doshi, Nitesh Kumar Jain and Atish Shah for front running the trades of Aditya Birla Mutual Fund. For example, in April 2024, SEBI imposed a fine of Rs 4 crore on the case of front running the trades of Aditya Birla Mutual Fund. Prior to that, in March 2023, action was taken against several people in the case of front running the trades of Axis Mutual Fund and ill-gotten profits of more than Rs 30 crore were confiscated. Prior to that, a case related to Deutsche Mutual Fund was settled in December 2021 and the charges related to HDFC AMC were settled by paying penalty in September 2019.

What will be the impact on quant mutual fund investors?

If SEBI finds evidence of front running, the fund house may face redemption pressure, which may lead to a decline in its NAV. Smallcap stocks in which Quant MF had a large stake may also come under selling pressure. Experts believe that there may be a sell-off in the mid-cap and smallcap stocks held by Quant. There may be some decline in the performance of this fund house in the coming days. But the stock selection of the fund house is such that there is no possibility of liquidity problems in terms of redemption. This is because the company’s funds have a good number of stocks of big companies. For example, about ten percent of Quant’s smallcap and midcap funds are also invested in Reliance Industries (RIL). SEBI’s aim is also to keep the money of investors invested in mutual funds safe. Therefore, even if the market regulator punishes people and firms involved in suspicious activities in such cases, the investors’ money is usually safe.