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The Securities and Exchange Board of India (Sebi), the market regulator, has initiated search and seizure operations at Quant Mutual Fund, a company owned by Sandeep Tandon, on suspicions of front-running.
These operations were conducted across two locations: Mumbai and Hyderabad. The Mumbai location targeted the Quant Mutual Fund headquarters, while the Hyderabad location focused on a suspected beneficial ownership address.
The investigation was triggered by concerns that Quant Mutual Fund might be engaging in front-running, an illegal practice where fund managers, dealers, or brokers exploit confidential information about upcoming large trades to place their orders first, profiting from the subsequent price movement when the large order is executed.
Front-running often involves clandestine transactions through undercover personal accounts before the intended orders are placed in the fund account. This allows the perpetrators to acquire assets at a lower price, while the publicly owned mutual fund ends up paying a higher price.
The investigation into Quant Mutual Fund comes at a time when Sebi has been actively cracking down on front-running in the mutual fund industry.
This aggressive stance is driven by the need to eliminate such illegal practices and protect the interests of investors. Sebi has been increasingly deploying search and seizure operations to gather evidence, particularly in complex cases where tracing transactions is challenging.
The search and seizure operations against Quant Mutual Fund mark a significant development in Sebi’s efforts to curb front-running.
The regulatory body is known for its determination to crack down on illegal activities in the financial markets, and this investigation highlights its commitment to maintaining a fair and transparent investment environment.
Quant Mutual Fund, founded by Sandeep Tandon, has enjoyed remarkable growth since obtaining a mutual fund license from Sebi in 2017.
Its assets have expanded from a modest Rs 100 crore in 2019 to an impressive Rs 90,000 crore at present, making it the fastest-growing mutual fund in India.
The fund has garnered significant investor confidence with its impressive performance, particularly in its small-cap fund, which manages over Rs 20,000 crore.
This fund has consistently outperformed its peers, delivering a 45% annualized return over the past five years, compared to a category average of 31%. In the past year, it recorded a 69% return, exceeding the category average of 55%.
However, these impressive results have now come under scrutiny from Sebi, which is investigating the possibility of illegal practices that contributed to the fund’s growth.
The investigation underscores the importance of maintaining ethical standards in the financial industry. Even high-performing funds are not immune to scrutiny when there are suspicions of illegal practices.
Sebi’s actions send a clear message to market participants that it will not tolerate any form of manipulation or front-running, regardless of a company’s size or track record.
The outcome of this investigation will be closely watched by investors and industry professionals, as it could set a precedent for future regulatory actions against mutual funds suspected of engaging in illegal activities.