Quant Mutual Fund is under SEBI's scrutiny | What is Front-Running?

moneycontrol

24 Jun 202403:06

Summary

TLDRThe Capital Markets regulator SEBI has conducted search and seizure operations on COR Mutual Fund, suspecting front running, as reported by Moneycontrol.com. With assets under management of 93,000 CR Rupees, the fund, founded by Suep Tundun, has grown rapidly since its 2017 inception. Despite not responding to initial queries, COR Mutual Fund later confirmed receiving inquiries from SEBI and pledged full cooperation. The fund, known for its top performance in the small-cap segment, is now under scrutiny for alleged front running, an illegal practice of profiting from large order execution, with the probe involving transactions potentially amounting to 20 CR Rupees.

Takeaways

🏦 QU Mutual Fund, with assets under management of 93,000 CR Rupees, is under suspicion of front running by SEBI according to a report by Moneycontrol.com.
🔎 SEBI has conducted search and seizure operations on two locations of QU Mutual Fund, one in Mumbai and another in Hyderabad, on June 21.
📧 QU Mutual Fund did not initially respond to queries but later confirmed receiving inquiries from SEBI and expressed commitment to cooperate in an email to investors on June 23rd.
📈 Founded by Suep Tundun, QU Mutual Fund obtained a license from SEBI in 2017 and has been the fastest-growing mutual fund in the country.
📊 The fund's assets have grown from around 100 CR Rupees in 2019 to 90,000 CR currently, surpassing 50,000 CR in January this year.
🏆 QU Mutual Fund's Small Cap Fund has been the top-performing fund in its segment over the past 5 and 3-year periods, delivering an annualized return of 45% compared to a category average of 31%.
🚀 In the past year, the fund achieved a return of 69%, significantly outperforming the category average of 55%.
💹 Notably, in May, 43% of total flows into the Small Cap Fund category went into QU's Small Cap Fund, as reported by Moneycontrol.
🚨 Front running is an illegal practice where fund managers or brokers put their own orders first, profiting from large orders that move the stock price when executed.
🔍 The case linked to QU Mutual Fund involves front running allegations, with the exact nature of the allegations and the extent of the probe not fully disclosed.
💰 The alleged profits from the transactions being probed by SEBI are close to 20 CR Rupees, but it is unclear if the management is under investigation or if the probe relates only to external parties.

Q & A

What is the issue with QU Mutual Fund as reported by Moneycontrol.com?
-QU Mutual Fund is suspected of front running by the capital markets regulator SEBI, with search and seizure operations conducted on the fund.
What is the significance of the search and seizure operations conducted by SEBI on QU Mutual Fund?
-The operations indicate that SEBI has strong suspicions of illegal activities, such as front running, which is a serious regulatory concern.
What was the response of QU Mutual Fund to the allegations?
-QU Mutual Fund confirmed receiving inquiries from SEBI and assured investors of their commitment to cooperate with the regulator and provide necessary support.
When was QU Mutual Fund founded and by whom?
-QU Mutual Fund was founded by SUEP TUNDUN and obtained a mutual fund license from SEBI in 2017.
What has been the growth trajectory of QU Mutual Fund's assets?
-The fund has experienced rapid growth, with assets increasing from around 100 CR rupees in 2019 to 90,000 CR currently, surpassing 50,000 CR in January this year.
How has QU Mutual Fund's Small Cap Fund performed in comparison to its category?
-The Small Cap Fund has been the top-performing fund in its segment over the past 5 and 3-year periods, delivering an annualized return of 45% compared to a category average of 31%, and a return of 69% over the past year compared to a category average of 55%.
What is front running and why is it considered illegal?
-Front running is an illegal practice where fund managers or brokers put their own orders first, knowing about upcoming large trades, to profit when the large order is executed and moves the stock price. It's illegal because it gives an unfair advantage and can manipulate the market.
How does front running typically occur in the context of mutual funds?
-Front running can occur by purchasing large blocks in trading accounts not in the name of the person buying, which are then moved to the fund's account, resulting in higher acquisition prices for publicly owned mutual funds.
What was the case involving the fund manager of EXIS Mutual Fund as reported by Moneycontrol.com?
-The fund manager of EXIS Mutual Fund and 20 entities linked to him were probed by SEBI in a front-running case, according to a Moneycontrol.com report.
What is the current status of the allegations against QU Mutual Fund?
-The exact nature of the allegations and the status of the investigation are not clear from the script. However, the probe by SEBI is ongoing, and the alleged profits from the transaction being investigated are close to 20 CR rupees.
How has the news of the allegations impacted QU Mutual Fund's operations or investor relations?
-The script does not provide specific details on the impact of the allegations on operations or investor relations, but it mentions that QU Mutual Fund has assured investors of their commitment to cooperate with the regulator.

Outlines

00:00

🏦 SEBI Investigates Front Running Allegations Against QU Mutual Fund

The Securities and Exchange Board of India (SEBI) is suspected of conducting a front running investigation on QU Mutual Fund, which manages assets worth 93,000 crore rupees. According to a report by moneycontrol.com, SEBI carried out search and seizure operations on June 21st in Mumbai and Hyderabad. Although QU Mutual Fund did not initially respond to queries, they later confirmed receiving inquiries from SEBI and assured investors of their cooperation and commitment to regulatory compliance. Founded by Supt Tundun, the fund received a license from SEBI in 2017 and has been the fastest-growing mutual fund in India, with exceptional performance in its small-cap segment, managing over 20,000 crore rupees and delivering high annualized returns compared to the category average.

📈 Unprecedented Growth and Performance of QU Mutual Fund

QU Mutual Fund has experienced unprecedented growth, with assets increasing from around 100 crore rupees in 2019 to 90,000 crore currently. The fund has surpassed 50,000 crore in assets in January of this year and has a portfolio of 26 schemes and 54 lakh folios. Its small-cap fund has been the top performer over the past 5 and 3-year periods, delivering an annualized return of 45% compared to a category average of 31%. In the past year, it achieved a return of 69%, significantly outperforming the category average of 55%. In May, a substantial 43% of total inflows into the small-cap fund category were directed into QU's small-cap fund, indicating its popularity and investor confidence.

🚨 Understanding Front Running and Its Legal Implications

Front running is an illegal practice where fund managers, dealers, or brokers, aware of upcoming large transactions, place their own orders first to profit from the price movement when the large order is executed. This can involve purchasing large blocks in trading accounts not in their names before transferring them to the fund's account, resulting in higher acquisition prices for mutual funds. Such transactions are challenging to trace due to their covert nature. Previous cases, such as the one involving the fund manager of Exis Mutual Fund and 20 linked entities, highlight the severity of front running allegations. The exact nature of the allegations against QU Mutual Fund remains unclear, with the report suggesting that the profits from the transactions under investigation by SEBI are close to 20 crore rupees. It is uncertain whether the management is under investigation or if the probe is related only to external parties.

Mindmap

Keywords

💡Mutual Fund

A mutual fund is an investment vehicle that pools money from many investors to invest in a diversified portfolio of stocks, bonds, or other assets. In the video's context, the Qu Mutual Fund is the focus, as it is suspected of front running by SEBI, the capital markets regulator. The script mentions the fund's rapid growth and its exceptional performance, particularly in the small-cap segment.

💡Front Running

Front running is an illegal practice where individuals with knowledge of large upcoming trades place their own orders before executing the larger trades, in order to profit from the price movement that results from the execution of the large orders. In the script, the Qu Mutual Fund is suspected of this practice, which is a serious allegation in the financial industry.

💡SEBI

SEBI stands for Securities and Exchange Board of India, which is the regulatory authority for securities markets in India. It is responsible for protecting the interests of investors and ensuring the proper functioning of the capital markets. The script mentions that SEBI has conducted search and seizure operations on the Qu Mutual Fund.

💡Assets Under Management (AUM)

Assets Under Management refers to the total market value of investments that a fund manager manages on behalf of investors. The script states that the Qu Mutual Fund has an AUM of 93,000 CR Rupees, indicating its size and the scale of the potential impact of its alleged front running.

💡Search and Seizure Operations

Search and seizure operations are legal actions taken by authorities to inspect and confiscate evidence related to a suspected crime or violation. In the video's narrative, SEBI has conducted such operations on the Qu Mutual Fund, indicating the seriousness of the allegations against it.

💡Investor

An investor is an individual or entity that commits money to purchase securities or other assets with the expectation of generating a profit or income. The script mentions that the Qu Mutual Fund sent an email to its investors to assure them of its commitment to cooperate with the regulator.

💡Regulated Entity

A regulated entity is an organization that operates within a specific industry and complies with the rules and regulations set by the governing authority. The Qu Mutual Fund is described as a regulated entity in the script, emphasizing its obligation to adhere to SEBI's regulations.

💡Small Cap Fund

A small cap fund is a type of mutual fund that invests in stocks of small-cap companies, which are typically smaller in market capitalization compared to large-cap or mid-cap companies. The script highlights the Qu Mutual Fund's small cap fund as having exceptional performance, managing over 20,000 CR Rupees.

💡Annualized Return

Annualized return is the average rate of return on an investment over a specified period, expressed as an annual figure. The script provides an example of the Qu Mutual Fund's small cap fund delivering an annualized return of 45% over the past five years, significantly outperforming the category average.

💡Category Average

The category average refers to the mean performance of a group of similar investments, such as mutual funds within the same investment category. In the script, the Qu Mutual Fund's performance is compared to the category average, showing its outperformance in both the small cap segment and overall.

💡Folios

In the context of mutual funds, folios refer to individual investment accounts held by investors. The script mentions that the Qu Mutual Fund has 54 lakh folios, indicating a large investor base.

Highlights

Qu Mutual Fund, with assets under management of 93,000 CR Rupees, is suspected of front running by the capital markets regulator SEBI.

SEBI has conducted search and seizure operations on Qu Mutual Fund, owned by S Tund, at two locations in Mumbai and Hyderabad on June 21.

Qu Mutual Fund did not respond to initial queries but confirmed receiving inquiries from SEBI after a story was published on June 23rd.

The mutual fund assured investors of its commitment to cooperate with the regulator and provide necessary support and data.

Qu Mutual Fund was founded by S Tundun and obtained a license from SEBI in 2017.

The fund has been the fastest growing in the country, with assets growing from around 100 CR in 2019 to 90,000 CR currently.

In January, the fund surpassed assets of 50,000 CR with a portfolio of 26 schemes and 54 lakh folios.

Qu Mutual Fund's Small Cap Fund has been the top performer in its segment over the past 5 and 3-year periods.

The Small Cap Fund delivered an annualized return of 45% over the past 5 years, compared to a category average of 31%.

In the past year, the fund achieved a return of 69%, while the category average was 55%.

In May, 43% of total flows into the Small Cap Fund category went into the Qu Small Cap Fund.

Front running is an illegal practice where fund managers or brokers put their own orders first to profit from large orders.

The case linked to Qu Mutual Fund involves front running, with alleged profits from the transaction being probed by SEBI close to 20 CR rupees.

The exact nature of the allegations and whether the management is under investigation remains unclear.

Earlier, SEBI had penalized the fund manager of Exis Mutual Fund and 20 entities linked to him in a front running case.

Transactions in front running are difficult to trace, often carried out through trading accounts not in the names of the individuals involved.