Technology has become central to our lives. It is also increasingly driving the way we invest. Quant funds use algorithmic, or algo, trading, in which computer software takes buy/sell decisions on the basis of preset formulae after extensive data crunching.
The process involves use of advanced mathematical models-based on parameters such as price movement, volume, earnings, financial ratios and growth-to take decisions in the market.
Quant funds have a data-driven approach. Typically, there is a model that automatically selects stocks based on various data inputs that may or may not include fundamental data.
Quant funds are at a nascent stage in India. Quantitative funds work best when you have a large liquid market, particularly for long-only quantitative investing. India has about 100 stocks with large trading volumes. This will increase as liquidity improves.