Built-in Checks to reduce inefficiency.For instance, DSP Quant fund has an expense ratio of 0.55% against a regular active mutual fund that could charge around 1% as expense ratio. Since quant funds are somewhat passively managed, the expense ratio could be lower than the actively managed funds. During market downturns, the fund managers of actively managed funds may exit certain investments and modify their style of investment. With a quantitative model, strategies can be designed such that there is higher consistency across various market conditions. For instance, if a fund house uses a model for stock selection based on a positive track record, it automatically eliminates stocks of companies that are highly leveraged and have volatile performance. This eliminates human interference and therefore, the chances of bias in stock selection. Here are some of the benefits offered by quant funds:Ī quant fund uses a pre-defined quantitative model to select stocks. They are often involved in the design and monitoring of the model that helps in making portfolio construction.
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Unlike, quant fund managers are not entirely passive. Quant funds focus on establishing automated programs to make investment decisions instead of relying on a fund manager’s ability to pick stocks while forming a portfolio. In a quant fund, the investment decision or stock selection is based on predetermined rules as per statistical or mathematical models.
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