Why is Sebi investigating Quant Mutual Fund and what is front-running
Front-running is an illegal practice in which an intermediary uses advance knowledge of a large pending mutual fund transaction to make personal trades.
Capital markets regulator Securities and Exchange Board of India (Sebi) has conducted search and seizure operations on Quant Mutual Fund. The Sandeep Tandon-owned MF has assets under management (AUM) of ₹93,000 crore and has been suspected of front-running, Moneycontrol reported as two locations of Quant MF- Mumbai and Hyderabad- were searched by Sebi.
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Quant Mutual Fund has been among the best-performing mutual fund houses in the past three years as its AUM has grown from ₹258 crore in January 2020 to over ₹90,000 crore by June 2024.
What is front-running and how does it work?
Front-running in mutual funds is an illegal practice in which an intermediary uses advance knowledge of a large pending mutual fund transaction to make personal trades. For example, if a broker trades stocks just minutes before a large institutional investor is expected to enter the market, this is front running. As the practice exploits insider information and harms interests of mutual fund as well as its investors, it is illegal in India.
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Is the same as insider training?
Both are illegal in India but differ in their nature and the type of information used. For insider trading, trading is based on material, non-public information about a company which can include earnings reports, mergers and acquisitions or other major business developments.
How can front-running impact you?
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Front-running can impact investors as it results in the stock price to move against the interests of the investor. For example: If a mutual fund plans to buy a large number of shares and front-running takes place, the price of the stock increases the purchase is completed. Owing to this, the mutual fund will end up paying a higher price for the shares which will reduce potential returns for investors.