- Date : 28/07/2022
- Read: 5 mins
A quant fund is a lesser-known category of mutual funds that takes investment decisions using advanced mathematical models and quantitative analysis.
A quant-based fund (or simply a quant fund) is a lesser-known category of mutual funds that takes investment decisions using advanced mathematical models and quantitative analysis. Quant fund managers select stocks with the help of computer-based algorithms to analyse macro, fundamental, and technical factors such as volume, volatility, liquidity, value, momentum, and alpha (extra returns).
Quantitative Investment
The quantitative model does not consider volatile stocks or those with large debt burdens, or dubious capital allocation. To understand how quant-based stock picking works, let us assume that a fund is keen on investing in a company that grew at 20% over the past three years.
While listing the preferred stock, technicals such as the return on equity, P/E ratio, P/B ratio, cash flow, dividend, earnings growth, etc., are evaluated. Factors such as a company’s broader financials as well as the state of the market and/or the economy are also taken into consideration.
Once the selections are made, a quantitative framework is developed to design the fund’s investment objectives and asset allocation. Portfolios are designed by assigning appropriate weight to each stock to achieve the targeted returns, and at the same time, aiming to cut back on the consequential damages arising from risks associated with traditional fund management.
Also Read: Different Types Of Funds Available Under Mutual Funds
Quant funds in India
Over the past decade, quantitative investment has been gaining traction across the globe, while in India, it was active investing that reigned supreme in this period, with fund managers selecting the equities for mutual fund schemes.
India’s first quant-based fund was Reliance Quant Plus Direct-G, launched in 2008 by Reliance Mutual Fund, which was later acquired by Nippon Life India Asset Management Co. The new owners subsequently renamed the fund as Nippon India Quant Fund.
It was not until a decade later that India got its second quant-based mutual fund: DSP Quant Fund, launched in 2019.
This was followed by five more over the next two years:
- Tata Quant Fund (early 2020)
- ICICI Pru Quant Fund (late 2020)
- Quant Quantamental Fund (early 2021)
- Axis Quant Fund (early 2021)
- IIFL Quant Fund (November 2021)
Performance of Indian quant funds
The market regulator SEBI (Securities and Exchange Board of India) has allowed mutual funds to launch their quant funds as thematic funds - a small category. Various fund houses, some of whose funds are very new, have their own set of regulations for their respective quant fund.
Often, these lack sufficient data points for a performance comparison. However, listed below are a few broad pointers to show how each is performing:
Also Read: Mutual Funds: A Powerful Investment Tool For Single Mothers
1. Nippon India Quant Fund
This fund has generated consistent returns of 11.25% since inception, according to ET Money. Its investment objective is to “generate capital appreciation through investment in equity and equity-related instruments,” as claimed on the fund’s webpage.
A direct growth fund, this has achieved a five-year CAGR of 9.46%. Its NAV as of 8 July 2022 is Rs 39.72.
2. DSP Quant Fund
This fund has generated returns of 14.37% since inception “without frequent ups and downs,” says ET Money. DSP Mutual Fund’s website reckons the average returns of its quant fund over a 7-10 year period are about 12%.
This is a direct growth fund. Its NAV as of 8 July 2022 is Rs 15.16.
3. Tata Quant Fund
This has delivered negative returns of 0.38% annually, as per data from ET Money. Also, there is no report card for this scheme as its existence is less than three years.
This is a direct growth fund. Its NAV as of 8 July 2022 is Rs 9.92.
4. ICICI Pru Quant Fund
This fund has delivered returns of 21.58% annually since inception, as per ET Money data. Also, there is no report card for this scheme as its existence is less than three years.
This is a direct growth fund. Its NAV as of 8 July 2022 is Rs 13.59.
Also Read: How Are Mutual Funds Taxed?
5. Quant Quantamental Fund
This fund has delivered returns of 12.59% annually since inception, as per ET Money data. Also, there is no report card for this scheme as its existence is less than three years.
This is a direct growth fund. Its NAV as of 8 July 2022 is Rs 11.54.
6. Axis Quant Fund
This fund has delivered negative returns of 1.28% annually since inception, as per ET Money data. Also, there is no report card for this scheme as its existence is less than three years.
This is a direct growth fund. Its NAV as of 8 July 2022 is Rs 9.97.
7. IIFL Quant Fund
This fund has delivered negative returns for any investment for periods of one month or more, as per data from Moneycontrol. There is no report card for this scheme as its existence is less than three years.
This is a direct growth fund. Its NAV as of 8 July 2022 is Rs 9.07.
A quant-based fund (or simply a quant fund) is a lesser-known category of mutual funds that takes investment decisions using advanced mathematical models and quantitative analysis. Quant fund managers select stocks with the help of computer-based algorithms to analyse macro, fundamental, and technical factors such as volume, volatility, liquidity, value, momentum, and alpha (extra returns).
Quantitative Investment
The quantitative model does not consider volatile stocks or those with large debt burdens, or dubious capital allocation. To understand how quant-based stock picking works, let us assume that a fund is keen on investing in a company that grew at 20% over the past three years.
While listing the preferred stock, technicals such as the return on equity, P/E ratio, P/B ratio, cash flow, dividend, earnings growth, etc., are evaluated. Factors such as a company’s broader financials as well as the state of the market and/or the economy are also taken into consideration.
Once the selections are made, a quantitative framework is developed to design the fund’s investment objectives and asset allocation. Portfolios are designed by assigning appropriate weight to each stock to achieve the targeted returns, and at the same time, aiming to cut back on the consequential damages arising from risks associated with traditional fund management.
Also Read: Different Types Of Funds Available Under Mutual Funds
Quant funds in India
Over the past decade, quantitative investment has been gaining traction across the globe, while in India, it was active investing that reigned supreme in this period, with fund managers selecting the equities for mutual fund schemes.
India’s first quant-based fund was Reliance Quant Plus Direct-G, launched in 2008 by Reliance Mutual Fund, which was later acquired by Nippon Life India Asset Management Co. The new owners subsequently renamed the fund as Nippon India Quant Fund.
It was not until a decade later that India got its second quant-based mutual fund: DSP Quant Fund, launched in 2019.
This was followed by five more over the next two years:
- Tata Quant Fund (early 2020)
- ICICI Pru Quant Fund (late 2020)
- Quant Quantamental Fund (early 2021)
- Axis Quant Fund (early 2021)
- IIFL Quant Fund (November 2021)
Performance of Indian quant funds
The market regulator SEBI (Securities and Exchange Board of India) has allowed mutual funds to launch their quant funds as thematic funds - a small category. Various fund houses, some of whose funds are very new, have their own set of regulations for their respective quant fund.
Often, these lack sufficient data points for a performance comparison. However, listed below are a few broad pointers to show how each is performing:
Also Read: Mutual Funds: A Powerful Investment Tool For Single Mothers
1. Nippon India Quant Fund
This fund has generated consistent returns of 11.25% since inception, according to ET Money. Its investment objective is to “generate capital appreciation through investment in equity and equity-related instruments,” as claimed on the fund’s webpage.
A direct growth fund, this has achieved a five-year CAGR of 9.46%. Its NAV as of 8 July 2022 is Rs 39.72.
2. DSP Quant Fund
This fund has generated returns of 14.37% since inception “without frequent ups and downs,” says ET Money. DSP Mutual Fund’s website reckons the average returns of its quant fund over a 7-10 year period are about 12%.
This is a direct growth fund. Its NAV as of 8 July 2022 is Rs 15.16.
3. Tata Quant Fund
This has delivered negative returns of 0.38% annually, as per data from ET Money. Also, there is no report card for this scheme as its existence is less than three years.
This is a direct growth fund. Its NAV as of 8 July 2022 is Rs 9.92.
4. ICICI Pru Quant Fund
This fund has delivered returns of 21.58% annually since inception, as per ET Money data. Also, there is no report card for this scheme as its existence is less than three years.
This is a direct growth fund. Its NAV as of 8 July 2022 is Rs 13.59.
Also Read: How Are Mutual Funds Taxed?
5. Quant Quantamental Fund
This fund has delivered returns of 12.59% annually since inception, as per ET Money data. Also, there is no report card for this scheme as its existence is less than three years.
This is a direct growth fund. Its NAV as of 8 July 2022 is Rs 11.54.
6. Axis Quant Fund
This fund has delivered negative returns of 1.28% annually since inception, as per ET Money data. Also, there is no report card for this scheme as its existence is less than three years.
This is a direct growth fund. Its NAV as of 8 July 2022 is Rs 9.97.
7. IIFL Quant Fund
This fund has delivered negative returns for any investment for periods of one month or more, as per data from Moneycontrol. There is no report card for this scheme as its existence is less than three years.
This is a direct growth fund. Its NAV as of 8 July 2022 is Rs 9.07.
