IIFL Mutual Fund is
coming out with a NFO in the form of IIFL Quant Fund.
IIFL Quant Fund as the
name suggests, would be a quant fund.
The fund would be open
for subscription from November 08, 2021 to November 22, 2021.
NFO
details for IIFL Quant Fund
|
Scheme Opens |
08/11/2021 |
|
Scheme Closes |
22/11/2021 |
|
Fund Manager |
Mr. Parijat Garg |
|
Benchmark |
S&P BSE 200
(TRI) |
|
Minimum Investment |
1,000 |
|
Fund Category |
Quant |
|
Exit Load |
1% if redeemed or switched within a year |
IIFL Quant Fund would
be an open – ended fund investing in equity and equity related instruments
based on a quantitative model.
Additional reading: Click Here to read everything you ever wanted to know about a NFO mutual fund
IIFL
Quant Fund Investment Objectives
The investment
objective of the fund is to generate long term growth while investing applying
a quantitative style in equity and equity related instruments.
There is no guarantee
that the investment objectives of the scheme would be achieved.
IIFL
Quant Fund Allocation
The asset allocation
for the fund would be something like this
|
Asset Class |
Minimum % |
Maximum % |
|
Equity and Equity
Related instruments |
80 |
100 |
|
Debt and Money
market instruments |
0 |
20 |
|
Units issues by
REITS and InvITs |
0 |
10 |
The above figures are
only indicative and not fixed, the fund managers have the liberty to move
across the asset classes depending upon prevailing market conditions as long as
they remain within the mandate permitted.
The fund can also
invest in REITs and InvITs if so desired.
What are quant
mutual funds?
Quant mutual funds are more concerned with
the quantitative side of things rather than the quality.
They filter and select companies on a
quantitative analysis based on a mathematical formula.
Unlike other mutual funds, quant mutual
funds have little scope for human intervention and is mostly driven by mathematical
formulae.
The role of a fund manager is limited.
As on 1st October 2021, the
following funds follow a Quant model:
All Quant mutual fund schemes
ICICI Quant Fund
Tata Quant Fund
DSP Quant Fund
Nippon Quant Fund
Axis Quant Fund
What is quant model?
The Merriam-Webster dictionary defines Quant as
‘’An expert at analyzing and managing quantitative
data’’
A Quant based Mutual Fund Scheme is one
that is far more driven by number, statistics and data than a macro- economic
approach.
Now what constitutes these numbers varies from Fund
House and at times, even schemes. For some it might be the quarterly results to
the PE ratio.
This approach for example would be more reactive to
the effect of a change in RBI Governor has on the market prices rather than
predicting what effect it would have in the future.
Meaning the mere change in RBI Governor has
absolutely no bearing on its functioning but if the change has an effect on the
stocks it holds and wishes to sell or buy then it would react accordingly.
The stock selection process is quantitative driven
and human intervention is limited, it picks up stocks based on their number
irrespective of other factors.
Robert Merton is considered one of the founding
fathers of quantitative study and this was way before the advent of modern
computers. With modern changes, it was imbibed with technology and is today
used by financial institutions around the world including Fund Managers.
The fundamental approach of this practice is to
break down complex mathematical data to look for alpha or excess return. There
has to be something more than what a Fund Manager can provide and that is where
its value comes into the picture.
Additional reading: Click Here to read our complete review of Quant Active Fund
How
does Quant investing works?
There is little to no human intervention, therefore
is no scope for human biases.
Quant strategies are system oriented and less reliant on
human support, therefore churning of human personnel has no impact on fund
management.
The model is always improving since new research
periodically improves the overall setup, thereby making back testing a
possibility.
Who can invest in IIFL Quant Fund?
The following persons
are eligible and may apply for Subscription to the Unit(s) of the Scheme:
Resident adult
individuals either singly or jointly (not exceeding three) or on an Anyone or
Survivor basis;
Minor (as the first
and the sole holder only) through a natural guardian (i.e. father or mother, as
the case may be) or a court appointed legal guardian. There shall not be any
joint holding with minor investments;
Non-Resident Indians
(NRIs) / Persons of Indian origin (PIOs) / Overseas Citizen of India (OCI)
residing abroad on repatriation basis or on non-repatriation basis;
Such other category of
person(s) permitted to make investments and as may be specified by the AMC /
Trustee from time to time.
This fund is suitable for investors:
- Seeking long term capital growth.
- Are prepared to invest in an active portfolio of stocks screened and selected based on a predefined momentum factor model.
- Have an investment horizon of more than 5 years and
Understand the risk factors
involved with momentum investing.
Are quant funds
better?
Quant funds are no better than non quant
funds.
They may and can boast a far superior one
year returns but not consistently.
This brings into question the long term
effectiveness of such a model.
The risk reward ratio does not justify the
volatility even for a small portion of your overall portfolio.
One year returns are tempting but they will
always be for all types of mutual funds, let alone quant mutual funds.
Equity mutual funds were never, are not and
will never be recommended for a one year period.
India is still an
emerging economy,it is way more sensitive in its reactions as compared to other
developed economies. This is far more the case when it comes to mid, small,
large&mid and even value schemes.
Expecting an algorithm to handle aggressive schemes that take the most beating in a market slump may not exactly be the most prudent thing to do.
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