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Front Running in Quant Mutual Fund or Groww accused of fraud - Impact on your investments

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A.    SEBI raids offices and locations of Quant Mutual Fund suspecting front running in its schemes.

B.  Grow an online mutual fund transaction platform for direct investors, committing fraud with its investor.

Since yesterday morning these two news are making headlines across electronic and social media channels. Investors are worried how safe are their investments and what should they do now. We have received dozens of calls seeking our views on these news and action points. Lets discuss them one by one and likely impact on your investments.

A.    SEBI raids Quant Mutual Fund Offices – Quant mutual fund has grown by over 1000 times in last seven odd years from the time they took over Escorts Mutual Fund in 2018. Quant’s assets under management (AUM) stand at over 93,000 crores. Quant practices momentum strategy very aggressively and have been quite successful over last 3-4 years. Peers in most categories lagged performance by a decent margin when compared to schemes of Quant mutual fund. And this has been the reason of humungous growth in its AUM from around 90 crores in 2017 to over 93,000 crores.

Front Running & Its Impact – Mutual funds because of holding large amount of funds buy or sell shares in very large numbers from the stock markets. If known to market players in advance, it may lead to large price fluctuation. Someone associated with the deal either from the fund house or its brokers pass this highly confidential information to close people who take opposite position in the market. And when the AMC approaches the market to execute the transaction they make decent profits by selling or buying same shares to the AMC. This activity is termed as front running. It is highly unethical and also illegal in India.

SEBI suspects front running into Quant’s schemes and have initiated investigations for the same. Quant’s schemes performance has been very good and if front running had taken place then it’s impact on performance of the scheme can’t be undone. But it definitely shatters our trust in mutual fund companies. We would like to wait for conclusion of SEBI’s investigation before making any comment. Till then we advise not to panic and withdraw your investments in haste. Yes evaluate your portfolio’s performance with your InvestmentMitra and if any rebalancing is needed, please do that.

B.     Fraud committed by online transaction platform for direct investors: Groww is an online platform providing facility to invest into multiple schemes of different AMCs using single login through its platform for free under direct option. It collects money from the investors to pay individual AMC as per the allocation. Investors were running SIPs into mutual fund schemes trough Grow and their investments showed in their portfolios. But when they wanted to redeem they were told by specific mutual fund company that their investments never happened. So where is the money collected by the online app which it collected from the investor to invest into mutual fund schemes as per instructions from the investors? If these claims are true, it is the case of forgery and fraud.

Since the time SEBI permitted investors to invest directly with the AMCs without taking help of a mutual fund distributor(MFD) and save on commissions that is required to be paid to the MFDs, many online platforms mushroomed to offer convenience of investing into multiple schemes through single platform. Some charged fee and many offered this facility for free. We all know that there is no free lunch but still gets trapped by such freebies culture.  It is equally important to know for us as investor that what the person will earn helping you and how does the person survive financially. We must ensure that to save small amount today, we should not risk our investments or wealth.

We haven’t seen any clarification form the “Grow” - the company in question and will wait for SEBI’s move on the same. We strongly advise to adequately compensate the person who helps you than getting trapped by free help. Someday underpaid or inadequately paid person will definitely hurt you.

At InvestmentMitra, we offer transactional services through our AMFI registered Mutual Fund Distribution Company and get commission paid by the mutual fund companies on the investments made by our investors. We don’t charge any fee to our investors directly.

Please share your views or comments on the blog. You may also whatsapp or email your comment or query to 9958447700 or contact@investmentmitra.com

Thank you.

Happy Investing!

Team InvestmentMitra


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