How Quantum AMC is adopting measures to protect investors amid SEBI's directive

Amid Securities and Exchange Board of India's (SEBI) recent directive on small and mid cap mutual fund schemes, mutual fund players are taking proactive steps to protect investors amid concerns of frothiness in these sectors.

SEBI's directive stresses upon the importance of establishing an investor protection framework for those investing in small and mid cap schemes.

The move follows stress tests conducted on such schemes with major assets under management (AUM) to evaluate their resilience in managing redemptions during market downturns.

The regulatory initiative aims to prevent scenarios where early investors gain an advantage over those who remain invested during market downturns and subsequent outflows, Chirag Mehta, CIO, Quantum AMC said.

Quantum Mutual Fund has acknowledged a steadfast approach amid heightened regulatory scrutiny. Despite acknowledging elevated valuations in the small-cap space, Mehta identifies pockets of opportunities through rigorous fundamental analysis, particularly focusing on price to earnings growth (PEG) metrics, Mehta noted.

Stressing upon the importance of fundamental analysis, Quantum Mutual Fund assesses forward valuations to identify stocks with potential upside. The fund house prioritises maintaining portfolio liquidity and implementing proactive measures to safeguard investor interests.

Key initiatives undertaken by Quantum Mutual Fund include:

Assessing fund capacity: The fund evaluates fund capacity based on stock-level liquidity, ensuring that there is ample room before reaching capacity thresholds.
 
Maintaining liquidity: Quantum Mutual Fund maintains a minimum threshold liquidity requirement for portfolio stocks, ensuring that stocks can be entered or liquidated within a reasonable timeframe.
  
Portfolio positioning: To mitigate concentration risk, the fund limits its holdings in investee companies, ensuring that no single holding exceeds 5 per cent of the market capitalisation of the company.
  
Investment guardrails: The fund caps its holding in investee companies at 4 per cent of the portfolio on a cost-to-net asset value (cost-to-NAV) basis, reducing the risk of large positions getting stuck in illiquid securities.
  
Portfolio rebalancing: Quantum Mutual Fund conducts regular portfolio rebalancing based on potential upside and relative valuation metrics, ensuring optimal portfolio performance.

These measures underline Quantum Mutual Fund's commitment to investor protection and reflect its proactive approach in navigating evolving market conditions.