Front-Running In Mutual Funds

The recent unearthing of front-running in the Quant Mutual Fund has suddenly brought this term to the forefront with investors getting a bit panicky and wondering if they should exit the fund. The article explains how front-running takes place and whether any such illegal activity impacts the investors’ money

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India's mutual fund industry, a haven for retail investors seeking long-term wealth creation, finds itself battling a persistent demon front-running. This unethical practice, where fund managers or insiders exploit their privileged knowledge of upcoming large trades to make personal profits ahead of their clients, is not just a regulatory headache, but a dangerous threat to the very core of investor trust. While we boast of a well-regulated market with the Securities and Exchange Board of India (SEBI) at the helm, several high-profile cases have dented investor confidence.

India's mutual fund industry has been rocked again quite recently by allegations of front-running, this time involving the high-flying Quant Mutual Fund. Known for its impressive returns and a meteoric rise in assets over the last few years, Quant MF now faces a regulatory probe, casting a shadow over its past performance. Quant MF, which is in the thick of a controversy, is one of India's fastest growing asset managers and has seen its assets under management (AUM) grow by 251 per cent over the last one year versus industry growth of 53 per cent, which means it has grown by five times the industry average.

Quant MFs total assets under management from all equitydedicated schemes at the end of May 2024 stood at ₹84,028 crore, up from ₹23,956 crore as on May 31, 2023. It was at just ₹225 crore in May 2019. This is a staggering 37,246 per cent jump in five years. Meanwhile, the net AUM of equity-oriented schemes as on May 31, 2024 for the industry stood at ₹25.39 lakh crore this May versus ₹16.56 lakh crore in the same month of the previous year. It was at ₹7.24 lakh crore as on May 31, 2019. The industry AUM growth has been 250 per cent in the aforementioned period.