Quant Small Cap Fund Review

Published: June 27, 2021 at 9:51 am

Last Updated on December 29, 2021 at 6:17 pm

This week, we review Quant Small Cap Fund, which saw a 32844% increase in its AUM between March 2020 and May 2021! Almost all of its current AUM of Rs. 504 crore came during this period! The fund has delivered 178.5% returns in the last year, but what is baffling  is, the increase in AUM started months before

Readers may recall we reviewed Quant Active Fund last week. So this makes tracing the history of Quant Small Cap fund easier. Quant Capital acquired Escorts Mutual Funds in late 2017, and the change became official in early 2018.

In probably the most bizarre change in scheme attributed to falling in line with SEBI regulations, Quant Income Bond Fund (previously Escorts Income Bond Fund) became Quant Small Cap Fund! One can see this transformation in the NAV below.

Quant Small Cap Fund NAV showing the change from debt fund to small cap fund
Quant Small Cap Fund NAV showing the change from debt fund to small cap fund

Since its inception as a small cap fund, it has only beat the benchmark since July 2020. Before the March 2020 crash, the small cap segment was already heading south since late 2017. During this period, the fund was not able to beat the benchmark. Investors in this fund should keep this in mind as the tide in the small cap segment can change quite fast.

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Quant Small Cap Fund Vs Nifty Smallcap since Oct 22 2018
Quant Small Cap Fund Vs Nifty Smallcap since Oct 22 2018

At the very least, the fund must go through a few cycles of ups of downs in this volatile segment before it can be taken seriously.

The asset allocation history of Quant Small cap fund is shown below. The fund seems to tactically increase bond or midcap/large cap exposure from time to time.

Asset Allocation History of Quant Small Cap Fund
Asset Allocation History of Quant Small Cap Fund

The month-end AUM in Crores and the total expense ratio (TER) of the direct and regular plans are tabulated below. The spike in AUM started only in July 2020, at which point the fund had barely beat the benchmark as seen above. The AMC reduced the direct plan TER as an incentive to invite the AUM further.

DateAUM CrTER Direct %TER Regular

To an investor considering investing in this fund in Aug 2020, the trailing returns of this fund as of July 31st 2020, would have appeared like this.

DurationQuant Small Cap Fund(G)-direct PlanNifty Smallcap 250 – TRI
1 Year26.76-4.53
3 Years0.55-10.61
5 Years3.56-0.20

Those indeed look impressive, but Quant Small Cap was only about 22 months old then (after the change in investment mandate).  The returns over longer durations are of little relevance. Since most investors do not bother to check, did they start investing based on such returns? Did some direct plan robo investment portal forget the fund’s history and rated it high based on 3Y or 5Y returns resulting in the higher AUM?

As of July 31st, 2020, Quant Small Cap has the highest 1Y trailing return in the small cap category but not the highest 3Y or 5Y returns. Was this enough to impress the (young) direct plan investors?!

For every month since then, the 1Y trailing returns of Quant Small Cap fund keep zooming up:

  • 46.5% in Aug 2020 (month end);
  • 52.7% in Sep 2020;
  • 50.7% in Oct 2020; By this time, the fund had the second-largest 3Y return (incorrectly!);
  • 61.6% by Nov 2020;
  • 76.1% by Dec 2020;  Now the fund became the topper in the 3Y return list again incorrectly!;
  • 60.9% by Jan 2021;
  • 86.5% by Feb 2021;
  • 177.25% by Mar 2021;
  • 174.97% by April 2021;
  • 208.1% by May 2021;
  • 178.5% by June 25th 2021; Topper in 3Y returns (incorrectly!) No 5 in 5Y returns (incorrectly!)

Easy to see why the AUM keep flowing in. Please note, we are considering inflows and not an increase in existing AUM because of returns. See: These MFs gained the most in AUM after the 2020 market crash.

The quarterly average Assets under management (AAUM)  (Rs in Lakhs) for Quant Small Cap reported at AMFI is tabulated below.

QuarterRegular GrowthDirect GrowthDirect DividendRegular Dividend
Oct-Dec 210826.7991.660.690
Jan–Mar 201928.4189.4533.290.6
Apr-Jun 201923.4387.21100.842.28
July-Sep 201919.8166.79100.392.83
Oct-Dec 201919.5865102.872.79
Apr-Jun 202017.4552.28109.683.07
July-Sep 202032.87863.181203.6482.72
Oct-Dec 202087.552957.713650.89105.76
Jan-Mar 2021139.036299.126363.07117.48

The bulk of the AUM increase is in the direct plan. Is this a case of mistaken identity? That is, investors or analytical software ignoring the fund’s history and comparing its trailing returns when it was a bond fund with a small cap index? Are direct plan investors who fancy small cap fund so witless that they would just look at the last 1Y return of a fund and invest? We shall leave these questions for the reader to answer.

In summary, we recommend that investors stay away from Quant Small Cap Fund or any of Quants offerings for that matter. They are too young and untested against market ups and downs. Regular readers may know our stand on small cap funds: Stay away from them or invest a small amount tactically, do no blindly start a SIP in these. See: Why a SIP in Small Cap Mutual Funds is a waste of money and time And: Do not use SIPs for Small Cap Mutual Funds: Try this instead!

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