business : Mutual fund investors should get rid of investments amid allegations of front-running

business : On June 23, 2024, news websites screamed about how search and seizure action is being carried out by SEBI on Sandeep Tandon’s Quant Mutual Fund, as part of an investigation into potential front-running. In case you don’t know, front running is a deceptive practice in finance where individuals exploit any advanced knowledge of market movements for personal gain. Here’s what it involves: When a broker or someone with access to private information trades a security (such as a stock or option) before his client or the general public is aware of a significant transaction that could affect the price, it is known as unethical trading. Abuse of insider information involves exploiting confidential details, such as information about a large client order or an imminent firm recommendation, which is expected to affect market prices, in order to gain an unfair advantage through pre-emptive trading. Now, let’s make it clear with an example. Imagine a scenario where a stockbroker knows that a major investor is preparing to buy a substantial amount of a specific stock, which is likely to drive its price up. Using this information, the broker immediately buys the shares at a lower price and later sells them once the price has risen due to the significant purchase. Also Read | Quant Mutual Fund

mutual fund: How many days will it take to liquidate your portfolio? What’s wrong with front-running practices? Front running unfairly benefits individuals with insider information and erodes market trust, essentially usurping potential profits from others. Most importantly, it is considered unethical for a few key reasons: Breach of trust and fiduciary responsibility: In the financial sector, brokers and advisors are entrusted with the fiduciary responsibility to prioritize the best interests of their clients. Front running directly undermines this obligation by prioritizing the broker’s personal gain over the client’s financial well-being. Investors trust their broker to act in their best interests, and front-running undermines this trust. Undermines market integrity: Open communication is essential to a fair and efficient market.

Front running overcomes this by using confidential information to gain an unfair advantage. This can lead to unpredictable price volatility and discourage genuine investors from participating, which would be detrimental to the entire market.Uneven playing field: The fundamental role of the financial market is price discovery, where the value of a security is determined by supply and demand. Front running disrupts this process by manipulating prices with privileged information rather than real market dynamics. This results in an uneven playing field where some people are unfairly advantaged.Front running, to put it in simple terms, is the practice of getting ahead of the line and sidelining people for your own benefit. It is a dishonest strategy that

Self-confidence erodes confidence and creates an unfair market. In most cases, it is illegal, especially when it relates to information about a specific client. However, there may be ambiguous situations, which underlines the importance of transparency and ethical behavior.Quant investors are facing uncertainty about whether they should withdraw their investments from the fund or maintain their regular systematic investment plans (SIPs). Clarifying on the basis of publicly available information, this is driven by suspicion of front-running.

There is a regulatory investigation. It is not a conclusive decision at this point.Despite efforts to encourage investors to remain optimistic and rational, many are concerned about the incident and the safety of their investments. This is further aggravated by Quant’s reputation as an outspoken asset management company that has consistently delivered top performance across categories in recent years.Dev Ashish, founder of Stable Investor, points out, “This is not the first time this has happened, Axis Mutual Fund went through the front-running scam just a few years ago. Before 2021, Axis equity schemes were chart-toppers. But after the front-running scam, the fund house is still struggling to regain its position. And it is not just performance that has been impacted. The fund house has also experienced a drop in money flows, which is a sign of a drop in investor confidence.

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2024-06-25 14:34:33

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