From Bull Runs to Market Shocks: Regime-Dependent Performance of Quant Mutual Funds

Abstract

Quantitative (quant) mutual funds use rule-based models, statistical signals and systematic risk controls to build portfolios. In India they have attracted large inflows since 2020, largely on the strength of exceptional trailing returns. Financial markets, however, do not behave uniformly. They move between distinct regimes (calm bull phases, turbulent corrections, sideways consolidation, and liquidity-driven rebounds), and each regime changes the volatility, correlation and return structure on which quantitative models depend. This paper examines how investors perceive the performance and volatility of quant mutual funds during regime shifts, and what determines their willingness to stay invested. It combines a review of the regime-switching, volatility-modelling, factor-investing and behavioral-finance literatures with a structured survey of 250 mutual fund investors. Descriptive statistics, one-sample t-tests, a chi-square test, one-way ANOVA and multiple regression are used. Investors overwhelmingly perceive quant funds as highly sensitive to regime change (mean 4.12 out of 5), yet understanding of the underlying models is weak and perceived transparency is low. Awareness and perceived transparency significantly raise the intention to remain invested, while perceived volatility lowers it. The paper closes with numbered findings and suggestions for investors, asset management companies (AMCs), distributors and regulators.

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