ICICI Quant Fund invests on Quant based investing theme – Should you invest in this NFO?

ICICI Quant Fund Invest based on Quantitative Model – Should you investICICI Quant Fund NFO – Review


ICICI Quant Fund would open for subscription on 23rd November, 2020. This is an open ended mutual fund scheme that follows the Quant based investing theme. Quant based theme in simple terms is nothing but investing based on a mathematical model.  The Quant investing model aims to remove Fund Manager bias in the mutual fund selection process. What are the ICICI Quant Fund NFO Issue details? Should you invest in ICICI Quant Fund NFO?

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ICICI Quant Fund NFO – Issue Details

This is an open-ended mutual fund. Here are the NFO issue details.

ICICI Quant Fund – NFO Issue Details
Scheme Opens 23-Nov-20
Scheme Closes 07-Dec-20
Scheme reopens for continous purchase/sale Within 5 days from closure
Minimum investment (Lumpsump) Rs 1,000
Minimum investment (SIP) Rs 100 for 6 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load 1% if exited within 1 year
Risk High Risk
Max Total expense Ratio (TER) 2.25%
Benchmark S&P BSE 200 TRI
Fund Manager Mr. Roshan Chutkey

Download ICICI Quant Fund NFO

What is the investment objective of ICICI Quant Fund NFO?

To generate long-term capital appreciation by predominantly investing in equity and equity related instruments selected based on a quantitative model.

However, there can be no assurance or guarantee that the investment objective of the scheme would be achieved.

What is Quant Based Investing Model?

The mutual fund strategy would be to construct a diversified portfolio across market capitalization and sectors. The quant model-based factor strategy is expected to provide the combined benefits of active and rule based systematic investments by minimizing the influence of human emotions and biases in decisions, increasing discipline and leverage computation power of machines for operational efficiency.

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The stock selection would happen based on the following:

1) The universe of stocks would be from BSE S&P 200.

2) Stocks that does not meet certain criteria like companies with corporate governance issues, liquidity, high default risks would be eliminated.

3) There are a list of parameters used to identify stocks as indicated below:

Price to Book

Price to Earnings

Return on Equity

Dividend yield

Earnings per share change

Interest Coverage Ratio

Analyst Ratings

Return on Invested Capital

Return on Assets

4) Certain stock weightage is applied in portfolio construction.

5) Portfolio would be reviewed and rebalanced on annual basis.

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What is the allocation pattern in this mutual fund scheme?

This fund investment pattern is as follows:

Type of instruments Min % Max % Risk Profile
Equity and equity related
instruments
95% 100% High
Debt and Money market
instruments
0% 5% Low to medium
Units of Mutual Fund Schemes 0% 5% Medium to High
Units issued by REITs & InvITs 0% 5% Medium to High

Can NRI invest in this MF scheme?

Yes, they can invest in this scheme. They can invest on repatriation or non repatriation basis. However, Resident of Canada, US persons and OCBs cannot invest in this scheme.

Why to invest in the ICICI Quant Fund?

Here are a few reasons to invest in this fund.

1) This fund invests based on the quant based investing theme which is a unique model.

2) The investment theme would minimize human intervention, hence emotions and fund manager biased decisions would be put aside.

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Major risk factors you should consider before investing in such funds

One should consider some of these risk factors / negative factors before investing.

1) The mutual fund would be investing in equity and related securities where portfolio construction and periodic rebalancing will be based on quantitative models. These models are based on historic correlations of a certain set of parameters with the price movements of stocks and markets. The models may take time to adjust to new changes to the historical relationships. During such periods before the quant models adjust to new conditions, the scheme may fail to give optimal returns. Thus, investing in a theme specific scheme may involve additional risk.

2) Quant Funds Investment strategies are rule-based, driven by algorithms developed basis historical relations of multiple factors with stock price movements. One of the risks in a quant-based model would be the time taken by the algorithm to adapt to new development or change in how  certain factors influence market or stock dynamics. The success of the model is based on the systematic investment approach and therefore it may not be able to leverage short term opportunities available in the market from time to time.

2) This fund invests some of the investments in debt instruments of corporates which is high risk.

3) This fund invests in REITs and InvITs which are high risk.

How is the performance of Mutual Funds, which are already investing based in this Quant Model?

Here is the performance of mutual funds which are investing based on this theme.

Fund Name 6 month Annualised Returns
1 Year 3 Year 5 Year
DSP Quant Fund 42.9% 17.2% NA NA
Nippon India Quant Fund 31.6% 9.6% 5.2% 8.9%
Tata Quant Fund 18.7% NA NA NA
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Should you invest in the ICICI Quant Fund NFO?

The ICICI Quant Fund invests based on a quant based investment theme, i.e. mathematical computations. There are only 3 funds in this theme as of now. While short term investment returns look good, in the long term, this looks more like mathematical model.

In Jan-2020 when the Tata Quant Fund NFO came, we have asked investors to avoid such funds. This fund gave negative 14% returns in the last 10 months (NAV has fallen from Rs 10 to Rs 8.53 per unit).

If you are really interested in investing in thematic funds, there are several consumption based mutual funds or rural theme mutual funds or ESG mutual funds which you can try. It is better to avoid this fund at this point of time.

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Suresh KP

3 comments

  • R Ramakrishna

    Capital Protection funds merely protect the Principal amount.They don’t offer returns above Inflation index at least modest returns.

  • R Ramakrishna

    I like your take very much.The markets in India are operator driven.Not mathematical or technical.The market defies all logic.If Donald Trump sneezes on Jan 01,2021 all the markets including India crumble like a pack of cards.Let us wait till Jan20, check the nav of this quant fund and take a decision.After all our principal amount should not be eroded.How I wish some AMC should come out with an NFO that combines the following factors
    1.Non erosion of capital
    2.Modest return that is slightly higher than Inflation.

    • Thank you Ramakrishna for your comments. But your comment about AMCcoming up capital non erosion funds are already existing and these are categorised as “capital protection funds”. As of today there are 29 such funds (source fundsindia)

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