Front Running Charges: NAV of Quant Mutual Fund Schemes falls after SEBI’s investigation; Should MF investors be worried?
A marginal decline was seen in the NAVs (net asset values) of Quant Mutual Fund which manages Mutual Fund schemes, after the investigation by the Securities and Exchange Board of India (SEBI) for suspicion of front-running.
SEBI, the market regulator is investigating a case of front-running on suspicion that involves Quant Mutual Fund. The Quant MF manages assets worth Rs. 93,000 crore. This investigation fears the investors of mutual funds and raises concern over the security of their investments.
SEBI during the raid at Quant’s Mumbai headquarters and premises in Hyderabad recently seized mobile phones, computers and other digital devices. This move of SEBI aims at tracing the leaked confidential information source from the company of asset management, which might have been used for illicit gains.
It is suspected that the involvement is linked with a dealer of Quant entity or broker firm by which the AMC places orders. It is said that individuals, often insiders or brokers who trade in advance based on privileged information are particularly involved in Front-running.
Let’s understand Front Running by an example:
Say, a broker knows an important client who intends to buy shares of large volume. This purchase by him will affect the market price of the shares. The broker, before placing the order for his client buys shares in his personal account. The shares are sold by the brokers immediately after the price of the share increases. This activity is called front-running.
As per SEBI regulations, it is both unethical and illegal.
The surveillance system of SEBI detected an alleged front-running case that involves organizations with prior knowledge of buying and selling plans of Quant Mutual Fund. It is suspected that Quant executives who have prior knowledge of order sizes and execution timing, could have leaked this information to potential beneficiaries.
Full cooperation has been promised by Quant Mutual Fund to SEBI for regularly providing the data on a daily basis.
Should MF investors be worried?
The impact on investors includes redemption pressure owing to negative publicity, which could lead to a drop in NAVs. Quant Mutual Funds hold a significant position in the stock trading in the market among which a segment of small-cap segment. The small-cap segment could also be affected and will face huge selling pressure.
Front-running breaks the trust of the investors in Mutual Funds, which leads to redemptions and fall in the NAV of the funds. Same thing might happen to Quant Mutual Funds.
Investors should not panic at this time and update themselves on the progress of the investigation of SEBI, which lets them stay ahead of the situation irrespective of the outcome.
