Kotak Mahindra Asset Management Company (AMC) on July 12, 2023 launched its first quantitative fund, the Kotak Quant Fund (KQF). It is an open-ended equity scheme that follows a quantitative-based investing theme that selects securities based on a factor-based approach compiled through quantitative analysis.
The new fund offer (NFO) closes on July 26, 2023. The benchmark for KQF is Nifty 200 Total Return Index (TRI).
For those interested in investing during the NFO period, the minimum initial purchase is set at Rs. 5,000, with subsequent purchases and switches allowed in multiples of Re. 1 and Re. 0.01, respectively. Investors can also opt for a systematic investment plan (SIP) with a minimum purchase of Rs. 500, subject to a minimum of 10 SIP installments of Rs. 500 each.
Quant Model
To better understand the functioning of the quant model employed by Kotak Quant Fund, the scheme information document explains how it narrows down the total universe of 800-1,000 stocks. Through a combination of human intervention and proprietary algorithms, the fund shortlists approximately 150-200 stocks, eliminating those with low liquidity, weak balance sheets, poor profit and loss statements, and bad governance.
From this refined selection, the algorithm-driven model identifies around 35-50 stocks based on momentum and volatility factors. In simpler terms, the model focuses on stocks that exhibit high growth potential and low volatility.
While the fund leverages proprietary insights to guide its decision-making, it avoids human bias by relying on the quant model for stock filtering. This approach aims to strike a balance between the benefits of both passive and active investing strategies, the fund house claims.
Should You Invest?
KQF will predominantly invest in large- and mid-cap stocks. The fund will invest 80-100 per cent of its investments in equity and equity-related instruments based on the quant model theme.
A maximum of 20 per cent can also be allocated to equity and equity-related securities of companies out of the quant model.
Out of six funds listed as quant funds on the Association of Mutual Funds in India (Amfi) website under the head thematic funds, three have provided returns higher than the average return of the quant fund category of 24.21 per cent, which is, however, lower than most of the mutual fund categories.
As outlined in the scheme information document, the scheme is categorised as having ‘very high risk’ due to its primary focus on equity instruments.
