In light of recent guidelines from the Association of Mutual Funds in India (AMFI) aimed at curbing front-running and fraudulent transactions, mutual fund investors are urged to be proactive in protecting their portfolios. The AMFI’s move follows allegations of front-running involving major mutual fund houses, including Quant MF, Axis Mutual Fund, HDFC Mutual Fund, and LIC. As front-running remains a persistent issue, investors must adopt strategies to minimize its potential impact on their investments.
Understanding Front-Running
Front-running occurs when insiders exploit their advance knowledge of upcoming trades to make profitable transactions at the expense of other investors. For example, if a mutual fund broker or official leaks information about a large impending trade, individuals may use this insider knowledge to position themselves advantageously, thereby disadvantaging other investors. This practice can significantly harm long-term mutual fund investors who are unaware of such manipulative activities.
Strategies to Mitigate Front-Running Risks
- Diversify Your Portfolio
Diversification is a fundamental strategy to reduce exposure to any single investment or market sector that could be targeted by front-runners. By spreading investments across various asset classes, sectors, and geographic regions, investors can mitigate the risk associated with potential front-running incidents. Amit Goel, Co-Founder and Chief Global Strategist at Pace 360, emphasizes, “Spread your investments across various asset classes and sectors. This reduces the concentration risk and makes it harder for front-runners to target specific stocks.”
Tarun Singh, Founder and MD of Highbrow Securities, also advises diversifying across a broad spectrum of sectors and regions to shield portfolios from localized market shocks.
- Stay Vigilant and Monitor Investments
Regularly reviewing and monitoring the performance of mutual funds can help investors detect unusual patterns that might indicate front-running. Narinder Wadhwa, MD of SKI Capital, suggests that vigilance is crucial: “Regular review of fund performance for unusual patterns might help investors indicate front-running.” Additionally, investors should choose fund houses known for strong compliance and governance to reduce the risk of encountering front-running.
Heena Arora Agarwal, Founding Managing Partner of FundVice, highlights the importance of staying informed and conducting thorough due diligence: “While front-running can be a significant concern for investors and their investments, it’s important to maintain a balanced perspective. By staying informed about market developments, conducting thorough due diligence on fund houses, and diversifying investments, investors can mitigate the risks associated with this practice.”
- Consider Passive Investment Options
Passive investment strategies, such as investing in index funds or exchange-traded funds (ETFs), can provide a safeguard against front-running. These investments aim to replicate the performance of a market index rather than seeking to outperform it, which reduces the likelihood of falling victim to manipulative trading practices. “Adhering to passive investment tools like index funds and ETFs is likely to reduce the chances of falling prey to front-running,” says Tarun Singh.
Responding to Front-Running Allegations
If a mutual fund in which you have invested comes under scrutiny for front-running, it is crucial to stay informed about the situation. Narinder Wadhwa advises reviewing the fund house’s response to the allegations and monitoring the actions taken by the Securities and Exchange Board of India (SEBI). “Research the allegations and gather information from reliable sources. Pay attention to the evidence presented and the response from the fund house,” says Wadhwa.
In conclusion, while front-running remains a challenge in the mutual fund industry, investors can take proactive steps to safeguard their portfolios. By diversifying investments, staying vigilant, considering passive management options, and closely monitoring any allegations, investors can better protect themselves from the negative impacts of front-running.

hii Aditi Sahu this side..
As an author and writer specializing in investment and finance , I am dedicated to delivering insightful articles and news stories that inform and engage the investment community . My focus is on providing timely and relevant content that covers market trends , innovative strategies , and key financial development . My goal is to equip investors with the knowledge and insights needed to make informed decisions and succeed in a dynamic financial environment.