Need Expert Advice?Our Gurus Can Help

Confused About SIP in Quant Small & Midcap: Should I Continue or Stop?

Ramalingam Kalirajan |8092 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jan 14, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Question by P on Jan 13, 2025Hindi

I am doing SIP in QUANT SMALL CAP & MIDCAP since last 2 years. Recently they are involved in front running case and SEBI investigation is going on. My doubt is shall i continue SIP or stop the investment ? I am already having another 5 SIPS in small cap , midcap & flexi cap since last 5 years which are having CAGR of above 15%. If you advice me to stop SIP in QUANT, i will divert this amount in above 5 sips.

Ans: The ongoing SEBI investigation and other highlighted concerns about Quant Mutual Fund raise significant questions. Here is a comprehensive evaluation of whether to continue your SIPs or stop them.

1. Understanding the Current Situation with Quant Mutual Fund
SEBI conducted a search-and-seizure operation, not a routine enquiry.

Quant Mutual Fund clarified that the operation was part of a court-approved investigation.

Changes in leadership, such as the CFO's resignation, have added to investor concerns.

Despite these challenges, the fund house continues to assure full cooperation with SEBI.

2. Performance and Reputation of Quant Mutual Fund
Quant Mutual Fund has shown exceptional growth, with AUMs rising from Rs 233 crore to Rs 94,000 crore in four years.

The fund's small-cap schemes have delivered outstanding performance, often topping the charts.

Critics highlight red flags, including over-reliance on one individual and potential SEBI rule violations.

Momentum-based strategies and concentrated stock holdings raise questions about risk and sustainability.

3. Risks Associated with One-Man Show Management
Investment decisions reportedly rely heavily on Sandeep Tandon, the key figure at Quant.

Lack of a robust team structure and research capacity may pose systemic risks.

A one-person-driven strategy can lead to inconsistent performance in volatile markets.

Inadequate team size and resources could hinder the fund’s ability to address SEBI’s queries effectively.

4. Evaluating Diversification in Your Portfolio
You already have five SIPs in small-cap, mid-cap, and flexi-cap funds performing well with over 15% CAGR.

Diversifying across multiple fund houses reduces exposure to single-entity risks.

Overlapping strategies within the same fund categories may lead to over-concentration.

Reassess your portfolio’s allocation to ensure alignment with your financial goals.

5. Tax Implications of Stopping SIP and Redeeming Investments
If you decide to stop SIPs and redeem investments, consider the tax impact.

LTCG above Rs 1.25 lakh is taxed at 12.5%, while STCG is taxed at 20%.

Plan redemptions to minimise tax liability and reinvest strategically.

Use a Certified Financial Planner for tax-efficient portfolio adjustments.

6. Alternatives to Quant Funds for SIP Diversion
If you stop SIPs in Quant funds, divert the amount to your existing well-performing funds.

Actively managed funds with strong teams and transparent processes are ideal alternatives.

Ensure new investments align with your risk appetite and financial objectives.

Balance between equity and debt funds for portfolio stability and growth.

7. Impact of SEBI Investigation on Investor Confidence
SEBI’s findings may impact Quant Mutual Fund’s reputation and future performance.

Regulatory actions could introduce stricter compliance measures across the mutual fund industry.

Monitor updates on the investigation and assess its implications for the fund house.

Maintain vigilance about regulatory developments affecting the fund.

8. Importance of Fund House Credibility
A fund house's governance and transparency are critical for investor trust.

Reevaluate investments in funds with potential governance issues.

Choose funds with a strong track record of compliance and ethical practices.

Avoid funds overly dependent on individuals rather than institutional processes.

9. Making a Decision on Quant SIP Continuation
Reasons to Consider Stopping SIPs in Quant Funds:

Regulatory risks due to SEBI investigation.
Over-reliance on a one-man strategy.
Lack of institutional structure and research team.
Reasons to Consider Continuing SIPs in Quant Funds:

Exceptional past performance.
Potential for future returns if the fund overcomes current challenges.
10. Final Insights
The SEBI investigation and governance concerns warrant a cautious approach. If you are uncomfortable with the risks, stopping SIPs and diverting funds to your other well-performing SIPs is prudent. Maintain a diversified and balanced portfolio to safeguard your financial goals. Stay updated on SEBI developments and periodically review your investments with a Certified Financial Planner.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.