Quant funds in India are gaining popularity as the technology is advancing. People rely on technology as it is more accurate and eliminates the chances of human error. But is completely depending on technology a good option? Can technology overcome the market surprises?
The answers to these questions lie ahead in the article. It will help you understand quant funds along with the pros and cons associated with them. After reading the article, you may be able to make a decision whether you should in them or not.
What are Quant Funds?
Mutual funds that choose and manage investments using computer-driven models are known as quant funds. These funds use algorithms and data analytics to find stocks based on preset rules and patterns rather than human fund managers.
This helps in eliminating emotional bias, subjective judgment, and developing a methodical, repeatable investing process. The buy/sell decision is based on factor analysis, historical data, and back-tested models.
Key Features:
- Rule-Based Selection: Rather than relying on human judgment, stocks are chosen based on statistical and mathematical criteria.
- Emotion-Free Process: Since these models are emotionless, there is no panic selling or overzealous purchasing.
- Investing based on factors: A lot of quant funds focus on things like quality, low volatility, value, and momentum.
- Automated Rebalancing: Rebalancing is done, and portfolios are routinely adjusted.
- Scalability: Prompt decisions can be made as models’ ability to analyze big datasets is higher than humans.
For instance, the DSP Quant Fund invests in reputable businesses with a high return on equity (RoE), little debt, and steady profits using a methodical approach. It offers a more predictable risk profile by eliminating businesses with issues with governance or high price volatility.
Quant Funds: Risk and Reward
Let us look at certain risks and rewards that are offered by the quant funds. It will be beneficial for you to understand these funds better.
Advantages:
- Discipline: It ensures discipline by tight guidelines that guarantee uniformity and avoid impromptu decisions influenced by emotions.
- Bias-Free: The analysis is completely based on quantitative data, and hence, there is no bias.
- Transparency of Strategy: The general investment approach and key factors used in the model are often disclosed by fund houses to promote transparency and trust, but the detailed proprietary algorithms behind quant funds are usually kept confidential.
- Diversified Exposure: Overexposure to any one stock or industry is usually minimised by quant models.
Disadvantages:
- Model Dependency: Performance may suffer if the model is faulty or predicated on incorrect assumptions.
- Market Surprises: Quantitative models might not respond to unforeseen economic or geopolitical developments.
- Restricted Flexibility: Models are unable to override decisions when necessary, in contrast to active managers.
- Data Quality Risk: Results can be distorted and misallocated due to inaccurate or delayed data.
Should You Invest in Quant Funds in 2025?
Quant may fit the investing criteria of some individuals, but not all. Let us know if quant funds are suitable for you or not.
Ideal For:
- Long-term investors who favour a rules-based strategy.
- Those who want to diversify their holdings in mutual funds purely based on quantitative information.
- Investors looking for low-bias and reasonably priced investment strategies.
Not Ideal for:
- Investors who favour active management with human emotional intelligence.
- Those seeking to make quick tactical changes in response to market developments.
How Quant Funds Are Gaining Popularity in India?
Indian investors have become more interested in quant funds in recent years, especially millennials and data-savvy professionals who feel more at ease with technology-driven investment options.
The main causes of their growing popularity are:
- Fintech and Robo-Advisory Platforms: Retail investors can now more easily research and invest in niche fund categories like quant funds on Groww and Zerodha.
- Low Expense Ratios: Quant funds in India generally have expense ratios ranging from around 0.5% to 1.5%, which can be lower than some actively managed equity funds that typically charge between 1.5% and 2%, making quant funds a relatively cost-effective option compared to traditional active funds.
- Strong Relative Performance: By adhering to their models and avoiding rash decisions, many quant funds outperformed their actively managed peers in erratic markets.
- Awareness and Education: To boost investor confidence and adoption, AMCs have started to release strategy notes and content that explains how their quant models operate.
| Fund Name | Category | Risk | Fund Size |
| Quant Focused Fund | Equity | Very High | Rs. 1049 |
| Quant Gilt Fund | Debt | Moderate | Rs. 142 |
| Quant Overnight Fund | Debt | Low | Rs. 213 |
Bottomline
The conclusion can be drawn that quant funds are indeed a good option for people who believe numbers more than human judgment. The models used for analysis in quant funds are thoroughly based on past data. Problems like emotional bias, rash decision, panicking, etc., are clearly avoided as they are emotionless.
However, sometimes a sudden change in the market may require human intervention and active fund management to overcome the challenge and even take an edge on its competitors. Choosing quant funds or not depends on the investor’s mindset and preference.
