SBI Mutual Fund, India’s biggest asset management company, plans to launch a quant fund, its first, which will leverage technology and data analysis to drive investment decisions. The scheme will follow a multi-factor-based investing approach.
The SBI Quant Fund will open for subscription on December 4 and close on December 18.
Factor-based investing involves selecting securities based on certain characteristics, or "factors", that historically linked to higher returns.
This is the first-ever quant fund by SBI Mutual Fund, which manages assets worth Rs 11 lakh crore, and marks its entry in the quant space.
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Quant funds, also known as quantitative mutual funds, use quantitative analysis to make investment decisions. This approach relies heavily on mathematical models, algorithms, and computer-based techniques to identify investment opportunities and manage the fund's portfolio.
The SBI Quant Fund will follow a multi-factor investing approach based on momentum, value, quality, growth and low volatility, according to the fund presentation .
Relying on a single factor can be risky due to the cyclical nature of markets, as no factor consistently outperforms across all periods. “A diversified multi-factor approach can help mitigate underperformance during unfavourable market conditions for a particular factor,” the fund house said in the presentation.
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A multi-factor strategy can deliver better risk-adjusted returns by balancing the strengths and weaknesses of different factors, it said.
The scheme will have an investment universe of the top 200 companies by market capitalisation. Stocks will be ranked based on momentum, value, quality and growth parameters to derive at a factor rank.
The portfolio will be constructed based on the composite quant rank with predefined risk constraints such as tracking error, liquidity and active weights.
Since the fund will have an investment universe of top 200 companies, the SBI Quant Fund will largely be a largecap and midcap-oriented fund.
It will be benchmarked against BSE 200 TRI (Total Return Index) and Sukanya Ghosh and Pradeep Kesavan (overseas securities) will be the fund managers for the scheme.
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Quant funds are still at a nascent stage in India with only 10 active schemes in the category with total assets under management (AUM) of Rs 9,000 crore, as of October end.
The success of a quant fund heavily depends on the accuracy and robustness of its models. If the models are flawed or based on incorrect assumptions, the fund can suffer significant losses.
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