DSP Quant Fund is changing fundamental attributes. Should you stay or exit?

DSP Quant Fund, the second largest quant fund in the Indian mutual fund industry, is changing its fundamental attributes three years after it was launched. The fund manages Rs 1,283 crore and it has offered 13% returns since inception.

The fund house has opened an exit window for existing unitholders to switch out of the scheme or seek redemption without paying any exit load, if applicable, within a 30-day exit period. The exit period ends July 15, 2022.

Mutual fund advisors typically say that investors should take a re-look at their investment in a scheme if it changes its fundamental attributes. Do you need to reassess your investment in the DSP Quant Fund?


Let’s take a look at what will change:

Rebalancing frequency:
The fund is going to change the frequency of rebalancing the portfolio of stocks quarterly. It used to rebalance the portfolio semi-annually. The rationale behind this, according to the fund house, is that this makes the quant model more dynamic and allows re-balancing of portfolio weights that may have drifted higher or lower due to extreme price moves.

Stock selection:
The fund is removing the cap on stock weight which initially was at 10x of its weight in S&P BSE 200 TRI, even though the 10% cap on single stock weight remains unchanged. According to the fund house, a sizable number of stocks within S&P BSE 200 TRI have very small weights of less than 0.10% weight in the benchmark. The 10x constraint results in sub-optimal weights in the portfolio for stocks that score well on selected factors.

Portfolio weights:
The scheme will now incorporate technical factors such as liquidity, stock price momentum, volatility, in the calibration of portfolio weights. The fund house will use technical factors for weight calibration. However, the stock selection process doesn’t change.

Even though mutual fund advisors say that a change in fundamental attributes is a good enough reason to exit the scheme, the changes in this case do not change the core strategy of the fund. “The fundamental attribute change is being done to implement the refinements to the Quant Model. Having said that, the changes are only incremental and would not drastically change the character of the fund and the risk return profile of the fund is largely going to remain the same,” said Prateek Nigudkar, Fund Manager, DSP Investment Managers.

Mutual fund advisors agree to the rationale given by the fund manager and believe that investors who have the risk appetite and are already invested should continue with the scheme.

‘“The move is to keep in tune with changing times and market conditions. The changes made are basically to refine the existing quant based model which may be relevant and important to incorporate due to heightened market volatility. I don’t think there is any strategy change or risk-return shift in the scheme. Hence, investors should avoid any knee jerk reaction,” says Shifali Satsangee, Founder, Funds Ve’daa, a mutual fund distribution firm based in Agra.