What do you need to know about investing in Quant Funds

Padmaja Choudhury   /   February 20, 2023

Quant funds, also known as quantitative funds, are a type of mutual fund that combine the principles of mathematics, data, and computer science to build an investment portfolio or a fund. These funds use algorithms to analyse vast amounts of data to identify trends, uncover correlations, and make investment decisions. Quant funds are relatively new, but they are quickly growing in popularity due to their ability to provide better returns than traditional funds.

In this article, we talk all about Quant Funds.

How Quant Funds operate

Quant funds rely on investing techniques that are algorithmic or systematically programmed. As a result, they don’t base their investment decisions on human managers’ expertise, wisdom, or viewpoints.

Various quant-based models have different trading signals, such as economic data and company news. Quant funds develop complex models around momentum, quality, value, and financial strength, utilising their custom algorithms created employing cutting-edge technologies.

Different money managers have their quant investment framework. For example, V-L-R-T​ is the investment framework for Quant Mutual Fund. V stands for valuation, L for liquidity, R is risk appetite, and T is time which is being aware of the cycles that control the interaction of the other three elements.

Unlike an actively managed fund, where the fund manager plays an active role in researching and taking investment decisions, the quant fund manager only implements any small-scale portfolio adjustments that are to be made. The fund manager’s daily responsibilities are restricted to keeping an eye on the fund’s performance and ensuring the portfolio is in line with the model’s predictions.

Much of the quant model’s labour-intensive testing and simulation is done before the quant fund is introduced, and the fund manager oversees the model’s improvement over time as the markets change.

It is known as quantitative investing. They are also known as quantitative funds since they utilise quantitative analysis rather than fundamental analysis.

The emergence of quant funds and the rise in the number of big data-related solutions was spurred by more accessible access to a wider variety of market data. The data sets that quant fund managers may deal with have greatly expanded thanks to advancements in financial technology and rising innovation in automation, providing managers with ever more robust data feeds for a more exhaustive examination of scenarios and time horizons.

Types of Quant Funds

In India, quant funds often use “single factor” or “multi-factor” based models, which are intended to narrow the fund’s investing universe down to a “model portfolio” based on these characteristics.

Single-factor quant: These are the most prevalent type of quantitative method. These have typically revolved around ratios that include valuations expressed through P/E, P/B, and dividend yield, etc., quality expressed through ratios like return on equity and return on capital employed, etc., or volatility expressed as Standard Deviation and Beta.

The companies belonging to the investment universe are ranked and chosen based on one or more of these variables individually. The shortlisted companies will be featured in the final portfolio.

Multi-factor quants:

Due to the market’s complexity and volatile nature, there isn’t a single method, approach, or point of view that can consistently outperform others. Many factors are constantly interacting with one another in many ways. And this gives rise to a multi-factor quant model.

These models incorporate two or more elements intended to produce a finer result regarding greater returns and generally reduced risk. As a result, these components are thoroughly tested to determine if they work well together and are continually assessed to make adjustments as new information becomes available.

Benefits of Quant Mutual Funds

Here are some of the benefits of investing in a Quant Mutual Fund:

Data-Driven Decision Making: Quant funds use data and sophisticated algorithms to analyse market trends and make investment decisions as per the fund’s mandate. As a result, the fund is free from emotional biases that might sometimes impact traditionally actively managed funds.

Increased Efficiency: As these funds are based on algorithms, they can analyse vast amounts of data in real time and quickly make changes as per the current events and market movements.

Potential for Higher Returns: Quant funds use advanced techniques to identify and capitalise on market inefficiencies. Their shorter reaction time also allows them to take quick investment calls, potentially leading to higher returns for investors over the long term.

Professional Management: Just like a regular mutual fund, a quant fund is also managed by experienced fund managers who use their expertise and technology to make informed investment decisions.

Disadvantages of Quant Mutual Funds

It’s important to note that while quant mutual funds have many benefits, they also have disadvantages. Here are some of them:

Difficult for investors to understand: As we have seen earlier, quant mutual funds rely on complex algorithms and data analysis to make investment decisions. This complexity can make it difficult for investors to understand how their investments are being managed.

Dependence on technology: These funds rely heavily on algorithms to make investment decisions. It can result in the underperformance of the fund if the algorithms set by the fund manager are flawed.

Lack of human judgment: While the lack of emotions from investment decisions might be a positive factor, the lack of human judgment in the decision-making process can result in missed opportunities or poor investment decisions.

Linked to market: Just like regular mutual funds, quant mutual funds are also subject to market risk and can experience losses if the market performs poorly. Additionally, funds might also underperform compared to their peers in the fund category.

List of Top Quant Funds

Many fund houses have launched quant funds under the thematic fund category.

Here are some of the top-performing quant funds:

Quant Flexi Cap: Quant Flexi Cap is the top performer in the flexi cap category in the three-year and five-year horizon with 35.58% and 17.95% returns as on 10th Feb 2023. NIFTY 500 TRI is the benchmark of the fund. This fund has assets worth ₹990 crores as on 31st Jan 2023. The fund has a higher portfolio turnover of 84% compared to its peers.

Quant Quantamental Fund: This fund is a thematic fund that can be compared to other quant funds of the different fund houses. This fund is ranked third in terms of its one-year return of 17.43%.

Nippon India Quant Fund: Nippon India’s Quant Fund ranked 10th out of 35 funds in the thematic fund category with a one-year return of 5.96%. The fund has delivered a three-year return of 17.81%. The AUM of the fund is ₹35 crores.

Quant Focused Fund: The fund is the top performing actively managed large cap fund with a three-year return of 22.95% return. It also has a stellar performance with a 10-year return of 17.40%.


Quant Funds are gaining popularity among investors as they are performing better than their peers. The working of these funds is more complicated than traditional funds, but the easiest way to understand a quant fund is to think about a fund that employs algorithms to determine which stock is likely to outperform the market by considering the various factors that make up the model.

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