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Should you consider investing in DSP Quant Fund NFO?

Sunil Dhawan
DSP mutual fund, nfo, BSE200, DSP Quant Fund, re-categorization, benchmarking, Total Return Index, fund manager

DSP mutual fund has launched DSP Quant Fund, an open ended equity scheme for the Indian investors. The NFO of fund is open since May 20 and will close on June 03, 2019. The benchmark of DSP Quant Fund is BSE 200 TRI, having a mandate to invest 95 to 100 per cent in equities and the fund will be managed by Anil Ghelani.

How different from any other equity MF

DSP Quant Fund is not like any other equity MF. Even though, there is a fund manager of the fund, the investment decisions and strategies will systematically follow investment rules tested over market cycles with minimum human biases.

Equity mutual fund investors entrust the fund manager with their savings to be invested in the stock market on their behalf. The performance will largely hinge upon the calls that the fund manager takes in the selection of industries, stocks and between growth and value stocks. This is called active fund management with active human intervention.

On the other side of the spectrum is the passive form of fund management such as in index fund where there is no role of the fund manager. Somewhere in between is another mode called Quant investing which attempts to avoid any cognitive biases and replace human instincts with software run investing models.

How Quant fund works

Out of the BSE 200 stocks, the fund will screen, select, weigh and re-balance the stocks on the basis of a pre-defined fundamental factor model priamrliy overlooking factors such as growth, value and quality within risk constraints.

According to the fund house, Factor strategies (also known as smart beta) today combine active and passive investing models providing the investors with the tools to express investment preferences and philosophies in an efficient manner. Driven primarily by underperformance and shrinking alpha particularly in the large cap space, such strategies have, in recent years, gained tremendous popularity particularly in developed markets.

What to do

Post re-categorization and benchmarking of funds to Total Return Index, the out performance of actively managed large cap equity funds is expected to come down over time. Quant funds along with index funds may be the space to consider for large-cap allocation in one’s portfolio. The former, however, is a relatively new category and one may wait to see its performance over time before investing.