SBI Mutual Fund to launch Multi-Factor Quant Fund; A First in Its Portfolio
India’s largest asset management company, SBI Mutual Fund is going to launch its first quant fund. The new scheme will use technology and data-driven techniques for investment decisions. The fund house has named the new scheme SBI Quant Fund. The new scheme will open for subscription from December 4 and will remain open till December 18, marking the fund house’s entry into the quant investment space.
Quant Funds or quantitative mutual funds have a A different approach which is that utilize mathematical models, algorithms, and computer-based techniques to recognize and present investment opportunities as well as to manage a portfolio. It allows a systematic, objective investment process.
SBI Quant Fund will have the following multi-factor investing: five key factors are identified namely: momentum, value, quality, growth, and low volatility. This approach seeks diversification of risk and diversification of returns through balancing the different factors’ strengths and weaknesses. Because no factor performs consistent with its mean return in each period, relying on a sole factor can be dangerous by the very nature of markets due to cyclical influences. A diversified strategy can reduce potential underperformance in adverse conditions for any of the factors. The fund will focus on the top 200 biggest companies by market size. These companies will be ranked based on factors like momentum, value, quality, and growth.
The portfolio will be created using a combined ranking system while also considering rules to manage risks, such as tracking errors, liquidity, and weight limits. This helps keep the investment strategy balanced.
Since this scheme will focus on the top 200 companies, large-cap and mid-cap stocks will constitute its primary investment. This fund will be benchmarked against BSE 200 TRI. It would have dedicated fund managers that could include expertise in overseas securities.
In India, quant fund remains in the nascent stage, with only 10 active schemes in the category and with total AUM worth Rs.9,000 crore as of October 2024. Even though quant funds have a great future, the success of these funds depends on the soundness and accuracy of their models. Incorrect assumptions or flaws in the models may incur serious monetary losses.
SBI Mutual Fund, which has an asset base of Rs.11 lakh crore, hopes to tap into this innovative investment strategy to deliver better risk-adjusted returns to investors. SBI Quant Fund marks a new interest in quantitative investment strategies in the Indian market.
