Mutual funds are a pool of professionally managed funds that invest in a diversified portfolio of securities for income generation. Mutual funds are known to offer capital appreciation over the long term. Mutual fund houses assign fund managers to mutual funds whose main job is to do data analysis, number crunching and take calculated risk to help the scheme achieve its investment objective.
Market regulator SEBI describes mutual funds as –
Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced.
What are quant mutual funds?
Quant funds are passively managed funds that invest in securities based on a predefined algorithm. These funds usually follow an investment strategy that is backed by artificial intelligence. As you may be aware, AI technology has become omnipresent and with quant funds, it has step foot in the world of mutual fund investing as well. A quant fund builds its portfolio of stocks based on a predefined set of rules. The AI software gathers numeric data through quantitative analysis based on which the fund picks and builds an investment portfolio of company stocks. The fund manager isn’t the decision maker here. Stocks are chosen only if they fit in the criteria set forth by data driven model. The main purpose of quant funds is to allow the scheme to perform with minimum interference of human intelligence.
Consider starting a monthly SIP in quant funds
Investors who wish to invest in quant funds for the long run should consider starting a monthly SIP. Quant funds predominantly invest in equity and equity related instruments. These funds are a third dimension to mutual fund investing and are following a unique asset allocation strategy for wealth creation. Investors must understand that they need to give quant funds an opportunity to show their true potential. For that, they must start a monthly SIP in quant funds and continue investing till their investment objective is accomplished.
Systematic Investment Plan is probably the simplest way to target your life’s long term goals. Any wealth creation plan can be easily achieved through systematic long term investing and SIP ensures that you save and invest at regular intervals. To start a monthly SIP, investors must complete all pre-investment formalities and become KYC compliant. After this, an investor must allow their bank to auto debit the predetermined SIP sum. Every month on a fixed date, the predetermined SIP sum is debited from the investor’s savings account and units are allotted to their portfolio in quantum with the monthly SIP sum. The NAV of the quant fund also determines how many units will be allotted.
If you wish to witness power of compounding, you must continue investing in quant funds via SIP for a minimum of 7 to 10 years. Compounding is nothing but the interest earned on the interest earned from the initial investment amount. Also, whenever the NAV of the fund is low you will receive more units. Since the SIP sum remains stagnant when the NAV is high less units are allotted. This is known as rupee cost averaging, a technique that allows investors to benefit from the falling markets.
Quants funds are a high risk investment that do not guarantee capital appreciation, please talk to a mutual fund expert before investing.